The son of a Viennese doctor, Zsigmondy was educated at the universities of Vienna and Munich, where he acquired his PhD in 1890. After periods at the University of Graz and in a glass factory in Jena, in 1908 he became professor of inorganic chemistry at the University of Göttingen, where he remained until his death.

Zsigmondy's first interest was in the chemistry of glazes applied to glass and ceramics. Studies on colored glasses led him into the field of colloids, first distinguished and named by Thomas Graham. Little advance had been made since Graham's time as it was not clear how to study them; the conventional microscope was not powerful enough to detect the particles. In 1903 Zsigmondy remedied this when, in collaboration with Henry Siedentopf, he invented the ultramicroscope in which the particles were illuminated with a cone of light at right angles to the microscope. Although still too small to be seen the particles would diffract light shone on them and therefore appeared as disks of light against a dark background. The particles could be counted, measured, and have their velocity and path determined. Zsigmondy published his work in this field in his book Kolloidchemie (1912; Colloidal Chemistry). In 1925 he was awarded the Nobel Prize for chemistry for his work on colloids.