Although chromium trihalides are widely regarded as a promising class of two-dimensional magnets for next-generation devices, an accurate description of their electronic structure and magnetic interactions has proven challenging to achieve. Here, we quantify electronic excitations and spin interactions in CrX3 (X = Cl, Br, I) using embedded many-body wavefunction calculations and fully generalized spin Hamiltonians. We find that the three trihalides feature comparable d-shell excitations, consisting of a high-spin 4A2(t2g3eg0) ground state lying 1.5–1.7 eV below the first excited state 4T2 (t2g2eg1). CrCl3 exhibits a single-ion anisotropy Asia = − 0.02 meV, while the Cr spin-3/2 moments are ferromagnetically coupled through bilinear and biquadratic exchange interactions of J1 = − 0.97 meV and J2 = − 0.05 meV, respectively. The corresponding values for CrBr3 and CrI3 increase to Asia = −0.08 meV and Asia= − 0.12 meV for the single-ion anisotropy, J1 = −1.21 meV, J2 = −0.05 meV and J1 = −1.38 meV, J2 = −0.06 meV for the exchange couplings, respectively. We find that the overall magnetic anisotropy is defined by the interplay between Asia and Adip due to magnetic dipole–dipole interaction that favors in-plane orientation of magnetic moments in ferromagnetic monolayers and bulk layered magnets. The competition between the two contributions sets CrCl3 and CrI3 as the easy-plane (Asia + Adip >0) and easy-axis (Asia + Adip