It is true! They are a sovereign state… Sort of.
More formally known as The Sovereign Military and Hospitaller Order of St John of Jerusalem, called of Rhodes, called of Malta they are more generally known as the Order of Malta or Knights of Malta. And they do indeed have extra-territorial status in the Malta Palace at 68 Via Condotti in Rome and the Villa on the Aventine and have had diplomatic relations with Italy since AD 1956. However most non-Catholic countries, including the United States of America, do not recognize them as a government. Also they only have permanent observer status at the United Nations, the bone thrown to many organizations that would like to be recognized but are not real nations.
The reason is clear, the Pope must ratify the Grand Master of the knights. He exercises a veto authority over any choice as Grand Master because it is a Catholic religious order and thus would be more properly termed the world's smallest dependency or territory. I think they would have much the same status as Puerto Rico, not a fully sovereign state. Also there is a recognized and legitimate government of Malta today, so at best they are a dependency in exile that has a special status due to the influence of The Vatican.
Still it is a very cool factoid.
Some more on their history, they were formed about AD 1080 as a hospital for pilgrims in the Kingdom of Jerusalem, a crusader state. They became a recognized Order of the Church in AD 1113 and became a military order about half a century later. They were driven out along with all the other crusader forces in AD 1291 and took over the island of Rhodes, where they continued to raid against Muslim ships for three centuries. The Ottoman Sultan Suleyman the Magnificent attacked them and they were forced to quit the island on Christmas Eve AD 1522.
There after they were stateless for another eight years until they were given title to the islands of Malta, Gozo, and Comino, as well as Tripoli in North Africa by Holy Roman Emperor Charles V. (They never really ruled Tripoli) They ruled the island of Malta until Napoleon captured it in AD 1798. The British occupied the island in AD 1805 and would not return it after the Napoleonic Wars concluded. The knights were left without a state again and now as the Roman Catholic Church appears to be out of military business it is unlikely in the extreme that they will get a new spot of earth to rule. Unless things change after somebody invents a hyperdrive.
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