An early advocate of a unified Europe, Otto was president of the International Paneuropean Union from 1973 to 2004. He served from 1979 until 1999 as a Member of the European Parliament for the conservative Christian Social Union of Bavaria (CSU) party, eventually becoming the senior member of the European Parliament. He was also a member of the Mont Pelerin Society. He was a major supporter of the expansion of the European Union from the beginning and especially of the acceptance of Hungary, Slovenia and Croatia. During his time in the European Parliament, he was involved in a fracas with fellow MEP Ian Paisley, a unionist Protestant pastor from Northern Ireland. In 1988, Pope John Paul II had just begun a speech to the Parliament when Paisley, a vehement anti-Catholic, shouted that the Pope was the Antichrist, and held up a poster reading "Pope John Paul II Antichrist". Otto snatched Paisley's banner and, along with other MEPs, ejected him from the chamber.

He was one of the men instrumental in organising the so-called Pan-European Picnic at the Hungary-Austria border on 19 August 1989. This event is considered a milestone in the collapse of Communist dictatorships in Europe.

In December 2006, he observed that, "The catastrophe of 11 September 2001 struck the United States more profoundly than any of us, whence a certain mutual incomprehension. Until then, the United States felt itself secure, persuaded of its power to bombard any enemy, without anyone being able to strike back. That sentiment vanished in an instant. Americans understand viscerally for the first time the risks they face." He was known as a supporter of the rights of refugees and displaced people in Europe, notably of the ethnic Germans displaced from Bohemia where he was once the Crown Prince. He was a jury member of the Franz Werfel Human Rights Award. He also held Francisco Franco in a high regard and praised him for helping refugees, stating that he was "a dictator of the South American type, not totalitarian like Hitler or Stalin".

In 2002, he was named the first-ever honorary member of the European People's Party group.

On the 2008 anniversary of the Anschluss, Otto von Habsburg made a statement as part of his "1938 Remembrance Day" address before Parliament that "there is no country in Europe that has a better claim to be a victim of the Nazis than Austria". Although his speech received an ovation, this received public protest, media criticism and disapproval voiced by Austrian politicians. Social Democratic Party Defence Minister Norbert Darabos was quoted as saying that the remarks were "unacceptable", "a veritable democratic-political scandal" and that he had "insulted the victims of National Socialism". Otto von Habsburg was also quoted as saying that "a discussion as to whether Austria was an accomplice or a victim is an outrage". Austrian People's Party military spokesman Walter Murauer defended Otto's statement at the time. Murauer claimed that there was "another reality behind the mass of people who listened to Hitler on the Heldenplatz", meaning the "thousands in the resistance and thousands in prison waiting to be transported to Dachau" near Munich. Murauer also recalled that Engelbert Dollfuß had been the only head of government in Europe to have been murdered by the Nazis. Murauer advised Darabos "to avoid populist pot-shots against an honourable European of the highest calibre". Otto's son, Karl von Habsburg, also defended his father's words, in a 2011 statement, stating that "there were guilty parties in practically every country".