He is regarded as one of the best diplomats of his time, chiefly for his role in negotiating the Treaty of Madrid in 1750 (revoked in 1761), when Portugal and Spain were attempting to delimit their territorial possessions in South America and Asia.

He was also a brother of Bartolomeu de Gusmão, a priest and naturalist recalled for his early work on lighter-than-air airship design (balloons).

During the period of the Iberian Union (1580–1640), due to the Portuguese dynastic succession crisis, Portugal and all its territorial possessions in Africa, Asia and the Americas came under the control of the Philippine Dynasty, of Spain.

By means of studies submitted to the Spanish Court, Gusmão proved that while Portugal had breached the Tordesillas Line, with the Portuguese occupying part of the Amazon basin and the Center-West of South America, Spain had breached the Zaragoza Line by expanding its possessions in Asia, taking the Philippines, the Marianas and the Moluccas, which were once Portuguese.

Alexandre de Gusmão successfully argued that the losses of one kingdom in one region had been compensated by its gains in another, and that the principle for territorial division should be the effective occupation of the land (uti possidetis).