Schally, who was born at Wilno in Poland, left his native country for Britain in 1939. After graduating from the University of London, he worked at the National Institute for Medical Research from 1949 until 1952 when he moved to Canada. There he worked at McGill University, Montreal, obtaining his PhD in biochemistry in 1957, before joining the staff of Baylor University Medical School, Houston. In 1962 he became head of the endocrine and polypeptide laboratories at the Veterans Administration Hospital, New Orleans.

Like his great rival Roger Guillemin, Schally spent much of his early career trying to confirm the hypothesis of Geoffrey Harris on the existence and role of hypothalamic hormones. It was not in fact until he had been donated a million pig's hypothalami by a meat packer that, independently of Guillemin, he isolated some 3 milligrams of the thyrotropin-releasing factor in 1966.

He followed this in 1971 by detecting the luteinizing releasing factor, showing it to be a decapeptide and working out its sequence of ten amino acids thus permitting its synthesis.

For his work on the hypothalamic hormones Schally shared the 1977 Nobel Prize for physiology or medicine with Guillemin and Rosalyn Yalow.