Schwarzschild was the son of a prosperous Jewish businessman from Frankfurt am Main. His interest in astronomy arose while he was at school and he had published two papers on binary orbits by the time he was 16. Following two years at the University of Strasbourg, he went in 1893 to the University of Munich, obtaining his PhD in 1896. He worked at the Kuffner Observatory in Vienna from 1896 to 1899 and after a period of lecturing and writing became in 1901 associate professor, later professor, at the University of Göttingen and director of its observatory. In 1909 he was appointed director of the Astrophysical Observatory in Potsdam. He volunteered for military service in 1914 at the beginning of World War I and was invalided home in 1916 with a rare skin disease from which he died.

Schwarzschild's practical skill was demonstrated by the instruments he designed, the measuring techniques he devised, and the observations he made. In the 1890s, while the use of photography for scientific purposes was still in its infancy, he developed methods whereby the apparent magnitude, i.e., observed brightness, of stars could be accurately measured from a photographic plate. At that time stellar magnitudes were usually determined by eye. He was then able to establish the photographic magnitude of 3500 stars brighter than magnitude 7.5 and lying between 0° and 20° above the celestial equator. He also determined the magnitude of the same stars visually, demonstrating that the two methods do not yield identical results. This difference between the visual and photographic magnitude of a star, measured at a particular wavelength, is known as its color index.

Schwarzschild also made major contributions to theoretical astronomy, the subjects including orbital mechanics, the curvature of space, and the surface structure of the Sun. In 1906 he published a paper showing that stars could not just be thought of as a gas held together by its own gravity. Questions of thermodynamics arise, concerning the transfer of heat within the star both by radiation and convection, that need a full mathematical treatment.

Einstein's theory of general relativity was published in 1916. While serving in Russia, Schwarzschild wrote two papers on the theory, which were also published in 1916. He gave a solution – the first to be found – of the complex partial differential equations by which the theory is expressed mathematically and introduced the idea of what is now called the Schwarzschild radius. When a star, say, is contracting under the effect of gravity, if it attains a particular radius then the gravitational potential will become infinite. An object will have to travel at the velocity of light to escape from the gravitational field of the star. The value of this radius, the Schwarzschild radius, SR, depends on the mass of the body. If a body reaches a radius less than its SR nothing, including light, will be able to escape from it and it will be what is now known as a ‘black hole’. The SR for the Sun is 3 kilometers while its actual radius is 700,000 kilometers. The theoretical study of black holes and the continuing search for them has become an important field in modern astronomy.

Schwarzchild's son, Martin, also became a noted astronomer.