Born at Benvie in Scotland, Playfair studied at St. Andrews University before becoming minister of Liff and Benvie in 1773. He was made a professor of mathematics at Edinburgh University in 1785 and professor of natural philosophy in 1805.

Playfair was a friend of the geologist James Hutton and in his Illustrations of the Huttonian Theory of the Earth (1802) he amplified and explained Hutton's uniformitarian ideas. Hutton's own work had been notoriously hard to follow and Playfair brought uniformitarianism to a considerably larger public. He also pioneered the idea that a river carves out its own valley.

Although he is better known as a geologist Playfair did make contributions of note to mathematics, in particular to geometry. In 1795 he published his Elements of Geometry in which he set out an alternative version of Euclid's fifth postulate, which, given the truth of the other postulates, is equivalent to Euclid's original formulation. This postulate is consequently now known as Playfair's axiom and asserts that for any line (L) and point (P) not on L there is one and only one line L′ through P parallel to L.