Born in Budapest, Eötvös studied at the University of Königsberg and at Heidelberg where he obtained his PhD in 1870 for a thesis concerning a method of detecting motion through the ether by measuring light intensity. At Königsberg in 1886 he introduced the Eötv̈os law – an equation approximately relating surface tension, temperature, density, and relative molecular mass of a liquid.

He then started teaching at Budapest University, where he was appointed professor in 1872. His work from then on centered on gravitation. In 1888 he developed the Eötvös torsion balance, consisting of a bar with two attached weights, the bar being suspended by a torsion fiber. He argued that if the two weights were made from different materials, and if the inertial and gravitational forces were not equivalent, there would be a discernible twisting force, which would cause a slight rotation of the bar about a vertical axis. Observations were made with copper, aluminum, asbestos, platinum, and other materials. No torque was found and Eötvös concluded that the masses of different materials were equivalent to a few parts per billion. His experiments were repeated in the 1960s by Dicke and in 1970 by Braginsky, with results affirming the equivalence to 1 part per 100 billion and 1 part per trillion respectively. The experiment became one of the foundation stones of general relativity since, by failing to distinguish between inertial and gravitational mass experimentally, it supported Einstein's principle of equivalence.

Eötvös spent much of his time trying to improve the Hungarian education system and for a short time was minister of instruction. He was also an excellent mountain climber and a peak in the Dolomites is named for him.