Townsend, the son of a professor of civil engineering from Galway (now in the Republic of Ireland), was educated at Trinity College, Dublin. In 1895 he took advantage of a change in the Cambridge examination statutes and, together with Ernest Rutherford, entered the Cavendish Laboratory as one of the first two non-Cambridge graduates. There they worked as research students of J. J. Thomson. In 1900 Townsend moved to Oxford as the first Wykeham Professor of Experimental Physics, a post he retained until his retirement in 1941.

In 1898 Townsend achieved his first major scientific success when he measured the fundamental unit of electric charge (the charge of the electron). The previous year Thomson had reported the discovery of the electron, whose mass he estimated at about 1/1000 that of the hydrogen atom. Townsend, working with gases released by electrolysis, was able to form charged clouds of water droplets and, by measuring the rate of fall of a water drop in the cloud, he could calculate the charge on each drop. More accurate work of this type was done by Robert Millikan in 1911.

Townsend's main work however was on, to take the title of his important book, Electricity in Gases (1915). He formulated a theory of ionization by collision, showing that the motion of electrons in an electric field would release more electrons by collision. These in turn would release even more electrons, and so on. This multiplication of charges, known as an avalanche, allowed him to explain the passage of currents through gases where the electric field was thought to be too weak.

Townsend was knighted in 1941.