Eisenstaedt was born in Dirschau (Tczew) in West Prussia, Imperial Germany in 1898. His family was Jewish and moved to Berlin in 1906. Eisenstaedt was fascinated by photography from his youth and began taking pictures at age 14 when he was given his first camera, an Eastman Kodak Folding Camera with roll film. He later served in the German Army's artillery during World War I and was wounded in 1918. While working as a belt and button salesman in the 1920s in Weimar Germany, Eisenstaedt began taking photographs as a freelancer for the Pacific and Atlantic Photos' Berlin office in 1928. The office was taken over by the Associated Press in 1931.

Eisenstaedt became a full-time Photographer in 1929 when he was hired by the Associated Press office in Germany, and within a year he was described as a "photographer extraordinaire." He also worked for Illustrierte Zeitung, published by Ullstein Verlag, then the world's largest publishing house. Four years later he photographed the famous first meeting between Adolf Hitler and Benito Mussolini in Italy. Other notable early pictures by Eisenstaedt include his depiction of a waiter at the ice rink of the Grand Hotel in St. Moritz in 1932 and Joseph Goebbels at the League of Nations in Geneva in 1933. Although initially friendly, Goebbels scowled at Eisenstaedt when he took the photograph.

This 1932 photograph depicts a waiter at the ice rink of the Grand Hotel. "I did one smashing picture", Eisenstaedt wrote, "of the skating headwaiter. To be sure the picture was sharp, I put a chair on the ice and asked the waiter to skate by it. I had a Miroflex camera and focused on the chair."

After first settling in New York in 1935, Eisenstaedt lived in Jackson Heights, Queens, New York, for the rest of his life. Until shortly before his death, he would walk daily from his home to his Life office on the Avenue of the Americas and 51st Street.

From his early years as professional Photographer he became an enthusiast for small 35 mm film cameras, especially the Leica camera. Unlike most news Photographers at the time who relied on much larger and less portable 4" x 5" press cameras with flash attachments, Eisenstaedt preferred the smaller hand-held Leica, which gave him greater speed and more flexibility when shooting news events or capturing candids of people in action. His photos were also notable as a result of his typical use of natural light as opposed to relying of flash lighting. In 1944, Life described him as the "dean of today's miniature-camera experts."

Eisenstaedt's most famous photograph is of an American Sailor grabbing and kissing a stranger—a young woman—on August 14, 1945 in Times Square. He took this photograph using a Leica IIIa. (The photograph is known under various names: V-J Day in Times Square, V-Day, and others.) Because Eisenstaedt was photographing rapidly changing events during the V-J Day celebrations, he stated that he did not get a chance to obtain names and details, which has encouraged a number of mutually incompatible claims to the identities of the subjects.

Along with entertainers and celebrities, he photographed politicians, Philosophers, artists, industrialists, and authors during his career with Life. By 1972 he had photographed nearly 2,500 stories and had more than 90 of his photos on the cover. With Life's circulation of two million readers, Eisenstaedt's reputation increased substantially. According to one Historian, "his photographs have a power and a symbolic resonance that made him one of the best Life Photographers." In subsequent years, he also worked for Harper's Bazaar, Vogue, Town & Country and others.

Two years before his death, Eisenstaedt photographed President Bill Clinton with wife Hillary and daughter Chelsea. The session took place at the Granary Gallery in West Tisbury on Martha's Vineyard and was documented by a photograph published in People magazine on September 13, 1993.

Since 1999, the Alfred Eisenstaedt Awards for Magazine Photography have been administered by the Columbia University Graduate School of Journalism.