The Last Millennium Reanalysis utilizes an ensemble methodology to assimilate paleoclimate data for the production of annually resolved climate field reconstructions of the Common Era. Two key elements are the focus of this work: the set of assimilated proxy records, and the forward models that map climate variables to proxy measurements. Results based on an extensive proxy database and seasonal regression-based forward models are compared to the prototype reanalysis of Hakim et al. (2016), which was based on a smaller set of proxy records and simpler proxy models formulated as univariate linear regressions against annual temperature. Validation against various instrumental–era gridded analyses shows that the new reconstructions of surface air temperature, 500 hPa geopotential height and the Palmer Drought Severity Index are significantly improved, with skill scores increasing from 10 % to more than 200 %, depending on the variable and verification measure. Additional experiments designed to isolate the sources of improvement reveal the importance of additional proxy records, including coral records for improving tropical reconstructions; tree-ring-width chronologies, including moisture-sensitive trees, for thermodynamic and hydroclimate variables in mid-latitudes; and tree-ring density records for temperature reconstructions, particularly in high northern latitudes. Proxy forward models that account for seasonal responses, and the dual sensitivity to temperature and moisture characterizing tree-ring-width proxies, are also found to be particularly important. Other experiments highlight the beneficial role of covariance localization on reanalysis ensemble characteristics. This improved paleoclimate data assimilation system served as the basis for the production of the first publicly released NOAA Last Millennium Reanalysis.