Born at Christiania (now Oslo) in Norway, Onsager was educated at the Norwegian Institute of Technology. He moved to America in 1928 and obtained his PhD at Yale in 1935. He spent virtually his whole career at Yale, serving as J. W. Gibbs Professor of Theoretical Chemistry from 1945 until 1972.

Onsager made two important contributions to chemical theory. In 1926 he showed the need to modify the equation established by Peter Debye and Erich Hückel in 1923 which described the behavior of ions in a solution, by taking Brownian motion into consideration.

Onsager's main work, however, was in the foundation of the study of nonequilibrium thermodynamics. Here an attempt is made to apply the normal laws of thermodynamics to systems that are not in equilibrium – where there are temperature, pressure, or potential differences of some kind. For his work in this field Onsager was awarded the Nobel Prize for chemistry in 1968. The study of nonequilibrium thermodynamics was further developed by Ilya Prigogine.