Stewart was born, the son of Gladys (née Barrowclough), a weaver and textile worker, and Alfred Stewart, a Regimental Sergeant Major in the British Army who served with the King's Own Yorkshire Light Infantry and previously worked as a general labourer and as a postman.

Throughout childhood, he endured great poverty and disadvantage, an experience which influenced his later political and ideological beliefs. In 2006 Stewart made a short video against violence for Amnesty International, in which he recollected his father's physical attacks on his mother and the effect it had on him as a child. He attended Crowlees C of E Junior and Infants School, and in 1951, aged 11, he entered Mirfield Secondary Modern School, where he continued to study drama.

At age 15, Stewart dropped out of school and increased his participation in local theatre. He acquired a job as a newspaper reporter and obituary writer, but after a year, his employer gave him an ultimatum to choose acting or journalism. He quit the job. His brother tells the story that Stewart would attend rehearsals during work time and then invent the stories he reported. Stewart also trained as a boxer.

In 1957, at the age of 17, he embarked on a two-year acting course at the Bristol Old Vic Theatre School. He lost most of his hair by the age of 19 but he successfully sold himself to theatre producers after performing an audition with and without a wig, heralding his performance as "two actors for the price of one!"

Following a period with the Manchester Library Theatre, he joined the Royal Shakespeare Company (RSC) in 1966 where he appeared next to actors such as Ben Kingsley and Ian Richardson. He made his Broadway debut as Snout in Peter Brook's legendary production of A Midsummer Night's Dream, then moved to the Royal National Theatre in the early 1980s.

Over the years, Stewart took roles in many major television series without ever becoming a household name. He appeared as Lenin in Fall of Eagles; Sejanus in I, Claudius; Karla in Tinker, Tailor, Soldier, Spy and Smiley's People; Claudius in a 1980 BBC adaptation of Hamlet. He even took the romantic male lead in the BBC adaptation of Mrs Gaskell's North and South (wearing a hairpiece). He is also one of only two actors to appear in Sir Kenneth Clark's Civilisation: A Personal View series.

He also had minor roles in several films such as King Leondegrance in John Boorman's Excalibur (1981), the character Gurney Halleck in David Lynch's 1984 film version of Dune and Dr. Armstrong in Tobe Hooper's Lifeforce.

In 1987, after attending a Shakespeare Seminar at UCSB, Stewart went to Los Angeles to star as Captain Jean-Luc Picard in Star Trek: The Next Generation (1987–1994), for which he received a 1995 Screen Actors Guild Award nomination for "Outstanding Performance by a Male Actor in a Drama Series."

From 1994 he also portrayed Picard in the movie spin-offs Star Trek Generations (1994), Star Trek: First Contact (1996), Star Trek: Insurrection (1998), and Star Trek Nemesis (2002); and in Star Trek: Deep Space Nine's pilot episode "Emissary". Stewart has said that his life was substantially changed by Star Trek. He has also said he is very proud of his work on Star Trek: The Next Generation, for its social message and educational impact on young viewers.

The accolades he has received include "Sexiest Man on Television" (TV Guide, 1992), which he considered an unusual distinction considering his age and his baldness. In an interview with Michael Parkinson, he expressed gratitude for Gene Roddenberry's riposte to a reporter who said, "Surely they would have cured baldness by the 24th century," to which Roddenberry replied, "In the 24th Century, they wouldn't care." A few years later on Jonathan Ross's BBC talk show, he said that his last patch of hair looked so out of place that while visiting friends his hosts actually held him down and cut off the offending lock.

In 1991, Stewart performed his one-man-play adaptation of Charles Dickens' A Christmas Carol in which he portrayed all 40-plus characters himself. He later starred as Scrooge in a TV movie version of A Christmas Carol, receiving a Screen Actors Guild Award nomination for his performance. He was also the co-producer of the show, through the company he set up for the purpose: Camm Lane Productions, a reference to his birthplace in Camm Lane, Mirfield.

He staged encore performances in 1992, 1993, 1994, 1996, and then again for the benefit of survivors and victims' families in the September 11, 2001 attacks. Stewart performed the play again for a 23-day run in London's West End in December 2005. For his performances in this play, he has received the Drama Desk Award for Best Solo Performance in 1992 and the Laurence Olivier Award for Best Entertainment for Solo Performance in 1994.

Shakespeare roles during this period included Prospero in William Shakespeare's The Tempest, on Broadway in 1995, a role he would reprise in Rupert Goold's 2006 production of The Tempest as part of the Royal Shakespeare Company's Complete Works Festival, and the title role in Shakespeare's Othello in 1997.

Originally a play about a black African entering a white society, Stewart had wanted to play the title role since the age of 14, so he (along with director Jude Kelly), inverted the play so Othello became a white man entering a black society.

He has played a great range of characters, from the flamboyantly gay Sterling in the 1995 film Jeffrey to King Henry II in The Lion in Winter, for which he received a Golden Globe Award nomination for his performance and an Emmy Award nomination for executive-producing the film. He portrayed Captain Ahab in the 1998 made-for-TV movie version of Moby Dick (receiving Emmy Award and Golden Globe Award nominations for his performance).

In late 2003, during the eleventh and final season of NBC's Frasier, Stewart appeared on the show as a gay Seattle socialite who mistakes Frasier for a potential lover. Stewart has also starred in X-Men, X2 and X-Men: The Last Stand as Charles Xavier.

The films' success has resulted in another lucrative regular genre film role in a major superhero film series. He has also since voiced the role in video games such as X-Men Legends II, although some of the games are more closely tied to the original comic books rather than the movies.

In 2005, he was cast as Professor Ian Hood in an ITV thriller 4-episode series Eleventh Hour, created by Stephen Gallagher. The first episode was broadcast on 19 January 2006. He also, in 2005, played Captain Nemo in a two part adaptation of The Mysterious Island.

Stewart also appeared in Ricky Gervais's television series Extras, as a last-minute replacement for Jude Law. For playing himself, he was nominated for an Emmy Award in 2006 for Guest Actor in a Comedy Series.

In October/November 2006, Stewart accompanied the Royal Shakespeare Company as they performed The Tempest, Antony and Cleopatra and Julius Caesar at the University of Michigan.

He acted the role of Antony again playing opposite Harriet Walter's Cleopatra in an acclaimed performance of Antony and Cleopatra at the Novello Theatre in London in 2007. During this period, Stewart also addressed the Durham Union Society on his life in film and theatre.