Rai was born on 1 November 1973 into a Tulu speaking Tuluva Bunt family in Mangaluru, Karnataka. Her Father, Krishnaraj, who died on 18 March 2017, was an Army Biologist, while her mother, Brinda, is a homemaker. She has one elder brother, Aditya Rai, who is an Engineer in the merchant navy. Rai's movie Dil Ka Rishta (2003) was co-produced by her brother and co-written by her mother. The family moved to Mumbai, where Rai attended the Arya Vidya Mandir High School. Rai did her intermediate schooling at Jai Hind College for a year, and then joined DG Ruparel College in Matunga, securing 90 percent in the HSC exams.

In 1991, Rai won an international supermodel contest (organised by Ford) and was eventually featured in the American edition of Vogue. In 1993, Rai gained huge public recognition for her appearance in a Pepsi commercial with actors Aamir Khan and Mahima Chaudhry. The single line – "Hi, I'm Sanjana," of her dialogue in the commercial made her instantly famous. In the 1994 Miss India pageant, she won second place, behind Sushmita Sen, and was crowned Miss India World, also winning five other sub-titles, "Miss Catwalk", "Miss Miraculous", "Miss Photogenic", "Miss Perfect Ten" and "Miss Popular". With Sen representing India at the Miss Universe pageant, Rai's duties as the first runner-up included representing India in the rival Miss World Pageant, held that year in Sun City, South Africa. She went on to win the crown where she also won the "Miss Photogenic" award and Miss World Continental Queen of Beauty − Asia and Oceania. After winning the pageant, Rai spoke of her dream for peace for this world, and her Desire to be an ambassador of peace during her one-year reign in London. Rai continued to pursue a career as a model until she became an Actress.

While in college, Rai did a few modelling jobs. Following appearances in several television commercials, she entered the Miss India pageant, in which she placed second. She was then crowned Miss World 1994, after which she began receiving offers to act in film. She made her acting debut in Mani Ratnam's 1997 Tamil film Iruvar and had her first Hindi film release in Aur Pyaar Ho Gaya that same year. Her first commercial success was the Tamil romantic drama Jeans (1998), following which she achieved wider success and won two Best Actress awards at Filmfare for her performances in Hum Dil De Chuke Sanam (1999) and Devdas (2002).

Rai made her acting debut in 1997 with Mani Ratnam's Tamil film Iruvar, a semi-biographical political drama, featuring Mohanlal, Prakash Raj, Tabu and Revathi. The film was a critical success and among other awards, won the Best Film award at the Belgrade International Film Festival Rai featured as Pushpavalli and Kalpana – dual roles; the latter was a fictionalised portrayal of Politician and former Actress Jayalalithaa. Due to Rai's weak Tamil-speaking skills, her dialogue in the film was dubbed by Tamil Actress Rohini. That same year, she was cast as Ashi, a naive teenager in her first Bollywood film – Aur Pyaar Ho Gaya, a romantic comedy opposite Bobby Deol. Both Iruvar and Aur Pyaar Ho Gaya were commercial failures and reviewers were critical of Rai's acting ability in both the films. However, for the latter, she won a Screen Award for Best Female Debut.

In the 1998 big-budget Tamil romantic drama Jeans directed by S. Shankar, Rai appeared alongside Prashanth and Nassar. She played Madhumita, a young woman who accompanies her ailing grandmother to the United States to seek medical attention. A commercial success, the film earned Rai praise for her acting and dancing skills. Unlike in Iruvar, Rai practised and dubbed for her own lines in the film. Jeans was later submitted as India's official entry to the Academy Awards for 1998. Her first role in 1999 was in the melodrama Aa Ab Laut Chalen, directed by Rishi Kapoor. The film was a critical failure and had a below average performance at the box office. Rai's portrayal of Pooja Walia, a traditional Indian woman living in the United States, met with negative reviews; Rediff.com published, "Aishwarya Rai Sports a plastic smile and never gets a scene where she can portray any depth. All she does is cry and smile and look pretty".

Rai has received ten Filmfare Award nominations, and has won two Best Actress trophies for Hum Dil De Chuke Sanam (1999) and Devdas (2002). In 2009, she was awarded the Padma Shri, the fourth-highest Indian civilian award, by the Government of India for her contributions to the arts. In 2012, she was awarded the Ordre des Arts et des Lettres, a national order of France.

In 2000, Rai starred in Kandukondain Kandukondain, a Tamil language adaptation of Jane Austen's novel Sense and Sensibility. Directed by Rajiv Menon, the film also starred Tabu, Mammooty and Ajith Kumar in prominent roles. Rai was cast as Meenakshi (based on the character of Marianne Dashwood), the younger sister of Tabu's character. The film was a critical and commercial success and earned Rai positive comments from critics; a review carried by The Indian Express summarised, "Attacking her role with just the perfect dollop of innocence, Aishwarya does full justice to her part, and matches up perfectly to Tabu."

Rai Bachchan is one of the most popular Bollywood celebrities. Despite constant media speculation, she keeps her personal life well-guarded. Her beauty and performances have made her as a style icon for young women. Over 17,000 websites dedicated to her, she was selected by Verve magazine in its list of the country's most powerful women. In 2001 Forbes named Rai among the top five Indian movie stars. In a reader poll conducted by UK's Hello! magazine, she was voted "the most attractive woman of 2003". In the same year, Rai appeared in Rolling Stone magazine's annual "Hot List". In 2004, she was chosen by TIME magazine as one of the world's most influential people, and appeared on the cover of its 2003 Asia edition.

In 2002, she participated in the show From India With Love in the UK, along with Amitabh Bachchan, Aamir Khan, Shah Rukh Khan and Preity Zinta. It took place at two outdoor venues, Manchester's Old Trafford and London's Hyde Park, with over 100,000 spectators.

In 2003, Rai featured in two romantic dramas of Bollywood, her brother's production début Dil Ka Rishta, alongside Arjun Rampal, and Rohan Sippy's Kuch Na Kaho, alongside Abhishek Bachchan. Neither of these films fared well critically or commercially. She was later noted for her starring role in Rituparno Ghosh's independent Bengali film Chokher Bali, an adaptation of Rabindranath Tagore's novel of the same name. She portrayed the character of Binodini, an emotionally manipulative widow, struggling with her sexual desires in early-20th century Bengal. The film was a major critical success and Rai earned positive notice for her performance; Derek Elley of Variety noted, "Rai dominates the film with her delicately sensual presence and physical grace". Commercially, the film was a sleeper hit.

Rai is the first Indian Actress to be on the jury of the Cannes International Film Festival. In October 2004 a wax figure of Rai was put on display in London's Madame Tussaud's wax museum. She was the sixth Indian and the second Bollywood personality—after her father-in-law, Amitabh Bachchan—to get this honour. In 2007, the same figure was displayed at Madame Tussaud's Museum in Times Square in New York. As her most distinctive physical features, Rai's green-blue eyes, luscious lips, curves and feminine mannerisms have been cited by the media as her trademark.

Rai appeared on such shows as Late Show with David Letterman, and was the first Bollywood personality to appear on Oprah's "Women Across the Globe" segment. In 2005 Harpers and Queen's list of "Most Beautiful Women in The World" ranked her ninth. In May 2006, Rai was featured in People Magazine as one of the "World's Most Beautiful People". The UK magazine Eastern Eye ranked her third in the list of "Asia's Sexiest Women" in 2006, and she was ranked eighth in 2009. In 2008 American television channel E!: Entertainment listed Rai's eyes as the sexiest on their Sexiest Body Parts list. In 2009, she made appearances on Martha Stewart's show Martha and on The Tyra Banks Show. In the same year Forbes listed Rai at 387th out of 1,411 actors on their list of the most bankable stars in Hollywood. She is the highest-ranked Indian actor on the list.

In the Sanjay Gadhvi-directed adventure film Dhoom 2, Rai portrayed Sunehri, a petty thief who helps the police catch an illusive criminal; the film had an ensemble cast including Hrithik Roshan, Abhishek Bachchan, Bipasha Basu, and Uday Chopra. Though critically unsuccessful, the film was Rai's first major commercial success since Devdas; the film was declared a blockbuster, and became the highest grossing Indian film of 2006 with gross revenues of over ₹1.11 billion (US$17 million). Rediff.com commented, "[She] is all gloss and no depth. You seldom feel any tension in her behaviour and expressions. [..] Sunehri enters the film nearly 50 minutes after its opening in a disguise. In no time, she is wearing the flimsiest of clothes. Once she opens her mouth—and she does it two minutes after appearing in the film—she spoils the image." Nonetheless, her performance earned her a sixth Filmfare Award nomination in the Best Actress category.

Though they both appeared in Dhai Akshar Prem Ke (in which her then longtime boyfriend, Salman Khan, had a brief cameo) and Kuch Naa Kaho, Abhishek Bachchan fell in love with Rai whilst filming Dhoom 2. Their engagement was announced on 14 January 2007 and later confirmed by his Father, Amitabh Bachchan. The couple married on 20 April 2007 according to traditional Hindu rites of the Bunt community, to which she belongs. Token North Indian and Bengali ceremonies were also performed. The wedding took place in a private ceremony at the Bachchan residence, "Prateeksha", in Juhu, Mumbai. They have been described as a supercouple in the Indian media. Rai is very close to her family and lived with them in Bandra, Mumbai, until her marriage.

Between July to August 2008, Rai, her husband Abhishek Bachchan, her father-in-law Amitabh Bachchan, and actors Preity Zinta, Ritesh Deshmukh and Madhuri Dixit starred in the "Unforgettable World Tour" stage production. The first leg covered the USA, Canada, Trinidad, and London, England. Rai is also involved in the functional and administrative operations of her father-in-law's company, originally known as ABCL, and rechristened as AB Corp. Ltd. That company, along with Wizcraft International Entertainment Pvt. Ltd., developed the Unforgettable production.

In a poll conducted by the newspaper Daily News and Analysis in 2009, she was voted as one of India's most popular icons. She attended the 83rd Academy Awards, along with her husband, Abhishek. Rai with her husband Abhishek Bachchan appeared on The Oprah Winfrey Show on 28 September 2009. She is the first Indian Celebrity who appeared in The Oprah Winfrey Show twice. They have been described as a supercouple in the Indian media

She ranked 2nd in The Times of India's 50 most desirable women of 2010, and ranked 9th for 2011. In 2011, she has received a lot of negative publicity for failing to lose her post-pregnancy weight as is apparently "required" of a public figure. However, she silenced her critics by walking the red carpet at the "AmfAR Cinema Against Aids" gala in 2012 Cannes Film Festival for the 11th time. Later that year, Rai has made it to the issue of New York Magazine’s list of "Forty Women That Women Find Beautiful", where she grabbed the 21st position in the list, with New York Magazine saying "She may be the "world’s most beautiful woman," but what we really love is that she never feels fragile onscreen,". She was considered by the media one of the most popular Bollywood celebrities in India.

Rai gave birth to a girl, Aradhya, on 16 November 2011. Rai is commonly referred to by fans and the media by the nicknames "Ash" and "Aish", but has stated that she dislikes being called as such. She has discouraged people from referring to her by names other than "Aishwarya" as she does not want to "spoil [her] good name".

Rai made her first commercial for Camlin exam pencils when she was in the 9th grade. Rai became popular after appearing in a Pepsi commercial with actor Aamir Khan. She is the only Actress who endorsed both Pepsi and Coca-Cola. She is one of the top brand ambassadors in the country and is one of the top paid Bollywood actresses in this respect. She modelled for Titan Watches, Longines watches, L'Oréal, Coca-Cola, Lakmé Cosmetics, Casio pager, Philips, Palmolive, Lux, Fuji films, Nakshatra Diamond Jewellery, and Kalyan Jewellers. She was named the official brand ambassador for De Beers diamonds in India. Rai has been ranked the 2nd most popular watch brand ambassador worldwide in a survey, conducted by World Watch Report. In 2013 Rai and her husband Abhishek Bachchan have been roped in as the brand ambassadors by the TTK Group. Rai endorses Lodha’s Worli project by Lodha Group World One.

Rai's final release of 2016 was Karan Johar's romantic drama Ae Dil Hai Mushkil, alongside Ranbir Kapoor and Anushka Sharma in which she played the role of a poetess named Saba. Rai received mostly positive notice for her performance despite having limited screen time. Nihit Bhav of Indiatimes wrote that "seeing [Rai] in the role of a confident seductress is a welcome change". The film emerged as a major commercial success with revenues of over ₹2 billion (US$31 million).

As of January 2018, Rai has filmed the part of a singer in the musical comedy Fanne Khan, co-starring Anil Kapoor and Rajkummar Rao. She will also play a woman suffering from dissociative identity disorder in a remake of the 1967 film Raat Aur Din.