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Luže is situated at an altitude of 318 m on the dividing line between the fertile lowlands of the Labe (Elbe) river and the Bohemian-Moravian highlands, about 22 km east of Chrudim and 15 km southwest of Vysoké Mýto (Hohenmauth).

Luž was founded on the right bank of the Olsinka river at a place where an older settlement existed as early as in the 12th century. The earliest reference to Luže was dated to 1250 when the newly founded townlet of Luža was united with the older settlement of Kamenicza. The old town of Luže with its regular layout and a large central market square was laid out around 1300. The first direct mention of Luže is found in a document of 1349 when its church was awarded to the newly founded bishopric of Litomyšl (Leitomischl).

The pilgrimage church of Our Lady [left] was built in 1690–1695 on the basalt hill above the town. The early Baroque project was executed by the Italian architect Giovanni Battista Alliprandi according to plans of Paul Ignaz Bayer.