Stanley, who was born in Ridgeville, Indiana, gained his doctorate in chemistry from the University of Illinois in 1929 and then traveled to Munich to work on sterols. On his return to America he joined the Rockefeller Institute for Medical Research in Princeton, New Jersey, where he began research with the tobacco mosaic virus (TMV).

Stanley was impressed by John Northrop's success in crystallizing proteins and applied Northrop's techniques to his extracts of TMV. By 1935 he had obtained thin rodlike crystals of the virus and demonstrated that TMV still retained its infectivity after crystallization. Initially this achievement met with skepticism from many scientists who had thought viruses were similar to conventional living organisms and thus incapable of existence in a crystalline form. In 1946 Stanley's research was recognized by the award of the Nobel Prize for chemistry, which he shared with Northrop and with James Sumner, who had crystallized the first enzyme.

During World War II Stanley worked on isolating the influenza virus and prepared a vaccine against it. From 1946 until his death he was director of the virus research laboratory at the University of California.