In one sense, Indian country is everywhere from the northernmost tip of Canada to the Tierra de Fuego. Under U.S. federal law, however, the term refers to (1) all land within reservations inside the United States, (2) all other land that the U.S. Government has set aside for the use of Indians, and (3) all land allotted to Indian owners that remains in the hands of Indian people. 18 U.S.C. § 1151.  The U.S. Federal Government holds about 56 million acres in trust for various Indian tribes and individuals, or about 2.4 percent of the approximately 2.3 billion acres contained within the United States.

If you own private property inside the boundaries of a reservation, your land is Indian country whether you are an Indian person or not. In the United States there are many tracts of private property located in Indian country that are populated primarily by non-Indians.

A right of way, such as for a railroad, that happens to run through a reservation is Indian country.  

Land purchased by an Indian tribe that is located outside a reservation does not normally become Indian country within the meaning of United States law. There is a process, however, by which a tribe that secured federal recognition by 1934 might be able to convert that land into Indian country. See Carcieri v Salazar, 555 U.S. 379 (2009).

What constitutes Indian country under the law is important because where events occur helps to determine what legal rules apply in a particular instance, and what court or courts may hear a particular matter. See Robert N. Clinton, Criminal Jurisdiction Over Indian Lands: a Journey Through a Jurisdictional Maze, 18 Arizona L.Rev. 503, 535-36 (1976) (available at law libraries)..

United States law recognizes a form of property right known as “original Indian title,” which is a tribe’s common law right to occupy its homeland. An Indian tribe can establish this right by showing it has occupied certain land continuously and exclusively over a long period of time.

The Fifth Amendment to the United States Constitution requires the government to compensate citizens when it takes private property for public use, but when the U.S. Government takes land in which an Indian tribe holds original Indian title, that taking does not give rise to a right of compensation under the Fifth Amendment. It may give rise,
though, to a claim under the Indian Claims Commission Act of 1946.

If the U.S. Government has expressly established (or confirmed) a reservation by treaty or statute, then a taking of land from that reservation does give rise to a Fifth Amendment right of compensation. United States v. Creek Nation, 295 U.S.103 (1935). Interest may be charged against the government in such a case.  This can be a significant factor if the taking happened a long time ago. See United States v. Sioux Nation, 448 U.S. 371 (1980).

If the reservation was established by executive order, however, the government taking does not give rise to a right of compensation.  At the time when it became a U.S. state, Congress resisted the creation of reservations in California. So reservations in the state were created by executive order.

Congress can decide to recognize a reservation created by executive order in statute.