Werner was born in the traditional mining town of Wehrau, which is now in Poland. Most of his ancestors had worked in some position or other in the industry and his father was inspector of the iron foundry at the town. He began work as an assistant to his father before entering the new Freiberg Mining Academy in 1769. He studied at the University of Leipzig (1771–75) before returning to teach at the Freiberg Mining Academy. There he established his neptunist views on the aqueous origin of rocks and attracted a considerable following.

Werner's neptunian theory explained the surface of the Earth and the distribution and sequence of rocks in terms of a deluge, which had covered the entire Earth including the highest mountains. The rock formations were laid down when the flood subsided in a universal and specific sequence. The first layer consisted of primitive rocks, such as granite, gneiss, and slates, and contained no fossils. The next strata (the transitional) consisted of shales and graywacke and contained fossilized fish. Above this were the limestones, sandstones, and chalks of the secondary rocks and then the gravels and sands of the alluvial strata. Finally, after the waters had completely disappeared, local volcanic activity produced lavas and other deposits.

However, this fivefold scheme, while no doubt applicable in Werner's region of Saxony, presented great difficulties outside the area. There was much that Werner could not explain, such as where the enormous flood had gone to and the presence of large basalt tracts in Europe, which were found in areas free of volcanoes. For many years Werner's theories eclipsed those of the plutonists, led by James Hutton, who emphasized the origin of igneous rocks from molten material. But as knowledge of the strata of Europe increased it became clear that there were too many regions in which Werner's sequence bore no relation to reality.

Yet neptunism certainly had its attractions, with Werner's disciples distributed throughout Europe. The advantages of the theory were that it was theologically acceptable, it was simple, and it showed how the Earth could be formed in the short time available.

Werner was also a mineralogist and he constructed a new classification of minerals. There was a major split among 18th-century mineralogists as to whether minerals should be classified according to their external form (the natural method) or by their chemical composition (the chemical method). Werner finally adopted, in 1817, a mixed set of criteria by which he divided minerals into four main classes – earthy, saline, combustible, and metallic.