Diamond City is a large city and self governing state within the Mushroom Kingdom. It is the primary setllement of the Human species and is located far enough away from the Capital that it is almost never involved in political situations.
Formed by a group of Humans who felt that they had no real place to call home, foundered a settlement near a diamond mine in a forest near the edge of the Mushroom Kingdom. Over the years they become more wealthy and started to build a proper city and called it Diamond City after the diamond mine.
Even though it is apart of the Mushroom Kingdom, it is a self governing city within the Kingdom with it own Lord Minister who is seen as the mayor of the city and High Council. The Lord Minister is voted in every 2 years.