Verse seven marks a change in the point of view of the narration. In verse six, God is speaking in response to the nations opposing Him. In verse seven, the King whom God established is now speaking. What the King says reveals a lot about his nature.
Paul directly quotes verse seven in Acts 13:33, which is in the middle of a speech he gives to Jews in Pisidian Antioch (Acts. 13:13-41). Paul uses this verse as proof that Jesus is the Son of God and the promised Messiah. This is exactly what the verse is talking about.
In essence, verse seven completes the Christological picture in verse six. In verse six, Jesus Christ is a man, established as King in time and space. Verse seven makes Jesus Christ out to be God, since He is declared to be the Son of God (Rom.1:4). And so the whole picture of the Messiah is painted. He is both fully God and fully man at the same time.
The outcome of the nations is decided in verse eight. “Ask of me, and I will make the nations your heritage, and the ends of the earth your possession.” These are the same nations that stand in opposition of God in the first three verses of the psalm. Now they are given over to Christ.
Verse nine reveals the fact that the enemies of God are not really any threat to Him. Christ is able, in His rule, to dash them into pieces as when an iron rod shatters a piece of pottery. There is no effort involved in that at all. This verse immediately brings to mind the image of the frailty of human life that Paul depicts in 2 Cor. 4:7.
Insights from the Septuagint
7I am proclaiming the ordinance of the Lord:
The Lord said to me, “You are my Son;
today I have begotten you.
8Ask from me, and I will give you the nations as your inheritance,
and the ends of the earth as your possession.
9You will shepherd them with an iron rod,
you will break them into pieces as a potter’s vessel.
The major point for discussion here is in verse nine, where the Septuagint reads “You will shepherd (or rule) them” instead of the English “You shall break them.” The ESV does make a note of the discrepancy, saying that a revocalization yields a different result from the initial translation.
I like the picture of a shepherd the Septuagint uses here (assuming I’m translating the word correctly). It is one used of Jesus Christ often in Scripture (John 10:1-21). It also carries the idea that Jesus’ role as God’s Son and King include more than just destruction of His enemies. If that were the case, we’d all be doomed. But as it stands now, He has reconciled us to God (2 Cor. 5:17-20).
Law & Gospel
We need to jump back to the first phrase of verse seven, “I will tell of the decree.” Luther talks about how this is the precise activity of the King that God has established on Zion. He is not a King who comes with swords, but a King who comes with a message.
What is that message? “The LORD said to me, ‘You are my Son; today I have begotten you.’” This is the entire message of the Gospel. Jesus Christ is the Son of God. We found out in verse six that Jesus Christ was placed by God in history at a specific place and time (see Gal. 4:4). Now we find out that all He did while here on earth is so very significant for us because He not only is a King, but He is also God.
Luther attaches an amazing level of significance to this verse. “It depicts this person more clearly and teaches that He was conceived by the Holy Spirit, born of Mary, a virgin mother, suffered under Pontius Pilate, died, was raised again from the dead by His own power, and sits at the right hand of the Father. It teaches that we have been commanded from heaven to hear Him, that we should fix our eyes on Him, as the Jews did in the desert on the bronze serpent, and that we should in no case be turned away from His words. We should believe that everything He says and does pertains to our salvation. For the Gospel is everywhere concerned with this… This is the most important part of our faith and the highest article of the Gospel.”
Why is this so important? Luther continues by saying, “For if we believed for sure that this Jesus is the Son of God, what would we fear, since it is certain that He stands by us and has been sent by the Father for our welfare?”
We have no need to fear because Christ is both God and King. Verse eight spells it out for us. “Ask of me, and I will make the nations your heritage, and the ends of the earth your possession.” Victory over the opposition is assured! The enemies have already been conquered! They have been handed over to Jesus Christ as His inheritance. He controls their destiny.
Christ’s authority is pictured as sure and powerful in verse nine when it is called “a rod of iron.” This is where the law rages against the conscience. By my sin, I demonstrate daily that I do not submit myself to Christ’s authority. The outcome of our sinfulness, if we are left to our own devices, is eternal destruction. We will be shattered like vessel of pottery when hit with an iron rod. This is a vivid image of what is described in the first half of Rom.6:23.
Our sin causes us to ally ourselves with the nations who line up in opposition against God. We are in blatant rebellion of God’s laws. We must turn our attention back to verse seven and the announcement: “You are my Son; today I have begotten you.” The One who died on the cross 2,000 years ago is God’s Son. He took my place. My Savior is my King!
 Martin Luther, vol. 12, Luther’s Works, Vol. 12 : Selected Psalms I, ed. Jaroslav Jan Pelikan, Hilton C. Oswald and Helmut T. Lehmann, Luther’s Works (Saint Louis: Concordia Publishing House, 1999),Ps 2:7.