The son of a wool merchant from Freiberg (now Příbor in the Czech Republic), Freud graduated from the University of Vienna with an MD in 1881 having also spent much time in the study of physiology. He worked at the Vienna General Hospital until 1885 and, after a further period of study in Paris under the neurologist Jean-Martin Charcot, set up in private practice in Vienna in the same year. He took the post of part-time head of the neurological outpatients clinic at the Children's Hospital and also held the position of Privatdozent in neuropathology at the University of Vienna.

Before Freud worked out the basic principles of psychoanalysis in the 1890s he had produced a substantial body of research in more orthodox fields. In addition to early work on comparative neuroanatomy, he discovered the euphoric effects of cocaine in 1884 and produced two sizable monographs – one on aphasia (1891) and the other on paralysis in children (1893).

By this time he had developed a more ambitious research program, clearly stated in his unpublished Project for a Scientific Psychology (1895). In this unfinished work he aimed to explain “the theory of mental functioning” in terms of quantitative physical concepts that would apply to both normal and abnormal psychology. To this end he went into considerable detail, even supposing the existence of three types of neurones with different physiological properties.

Freud however drew back from such a neurological approach. In 1893 he collaborated with Josef Breuer on The Psychical Mechanism of Hysterical Phenomena, later expanded into Studien über Hysterie (1895; Studies in Hysteria, 1955), a work that marked the beginning of psychoanalysis. During the period 1892–95 Freud evolved his psychoanalytical method using the technique of free association. Following this he developed his theory that neuroses were rooted in suppressed sexual desires.

Freud's major work, Die Traumdeutung (1899; The Interpretation of Dreams, 1953), is regarded as his most original. In this he analyzed dreams in terms of unconscious desires and experiences. His other works included Zur Psychopathologie des Alltagslebens (1904; Psychopathology of Everyday Life, 1960), Totem und Tabu (1913; Totem and Taboo, 1955), Jenseits des Lustprinzips (1920; Beyond the Pleasure Principle, 1955), and Das Ich und das Es (1923; The Ego and the Id, 1961).

In 1902 Freud established a circle of colleagues who met to discuss psychoanalytical matters once a week at his house. The group's original members were Alfred Adler, Max Kahane, Rudolf Reitler, and Wilhelm Stekel. This grew, and later became the Vienna Psycho-Analytical Society (1908), and finally, the International Psycho-Analytical Association (1910). Freud, now becoming famous in Europe, made a tour of America in 1909 where he was well received. By 1911 the International Psycho-Analytical Association had begun to break up through differences of opinion, Carl Jung and Alfred Adler being among the most significant to leave. However, by the 1920s Freud had become one of the most famous thinkers of the century.

In 1923 Freud was diagnosed as having cancer of the jaw. During the next 16 years he was to suffer more than 30 operations and be compelled to live with a prosthesis which, by substituting for his excised jaw and palette, allowed him to eat, drink, smoke, and talk.

In 1938 he was forced to leave Vienna by the Nazis for exile in London. He continued to see patients and to work on his last book, Der Mann Moses und die monotheistische Religion (1939; Moses and Monotheism, 1960), but within a matter of months it was clear to him that he could continue to work no more. It was then that he reminded his doctor: “My dear Schur … you promised you would help me when I could no longer carry on.” Schur honored his pledge with morphine ensuring a peaceful death.