His family had been in Massachusetts Bay since 1632, and his father, Aaron Bancroft, was distinguished as a revolutionary soldier, a leading Unitarian clergyman and author of a popular life of George Washington. Bancroft was born in Worcester and began his education at Phillips Exeter Academy; he entered Harvard College at thirteen years of age. At age 17, he graduated from Harvard, class of 1817, and went to study in Germany. Abroad, he studied at the universities of Heidelberg, Göttingen and Berlin. At Göttingen he studied Plato with Arnold Heeren; history with Heeren and Gottlieb Jakob Planck; Arabic, Hebrew, New Testament Greek and scripture interpretation with Albert Eichhorn; natural science with Johann Friedrich Blumenbach; German literature with Georg Friedrich Benecke; French and Italian literature with Artaud and Bunsen; and classics with Georg Ludolf Dissen. In 1820, he received his doctorate from the University of Göttingen.

Bancroft, having trained in the leading German universities, was an accomplished scholar, whose magisterial History of the United States, from the Discovery of the American Continent covered the new nation in depth down to 1789. Bancroft was imbued with the spirit of Romanticism, emphasizing the emergence of nationalism and republican values, and rooting on every page for the Patriots. His masterwork started appearing in 1834, and he constantly revised it in numerous editions. Along with John Gorham Palfrey (1796–1881), he wrote the most comprehensive history of colonial America. Billias argues Bancroft played on four recurring themes to explain how America developed its unique values: providence, progress, patria, and pan-democracy. "Providence" meant that destiny depended more on God than on human will. The idea of "progress" indicated that through continuous reform a better society was possible. "Patria" (love of country) was deserved because America's spreading influence would bring liberty and freedom to more and more of the world. "Pan-democracy" meant the nation-state was central to the drama, not specific heroes or villains.

Bancroft's father had devoted his son to the work of the ministry. While the young man delivered several sermons shortly after his return from Europe in 1822 which produced a favorable impression, the love of literature proved the stronger attachment.

A little volume of poetry, translations and original pieces, published in 1823 gave its author no fame. As time passed, and custom created familiarity, his style, personal and literary, was seen to be the outward symbol of a firm resolve to preserve a philosophic calm, and of an enormous underlying Energy which spent itself in labor. He found the conversational atmosphere of Cambridge uncongenial, and with Joseph Cogswell he established the Round Hill School at Northampton, Massachusetts. This was the first serious effort made in the United States to elevate secondary education to the plane on which it belonged.

He returned to Heidelberg Schlierbach, where he had stayed during his studies in Heidelberg University. He founded a learning community for natural science and religion called Heidelbridge Community College, which in 1825 became Heidelbridge University of Science. This university received profound support from Harvard and in 1916 merged part of its academic learning with Heidelberg University, except Medicine and Law which still remained under the leadership of the Harvard Academic Council, although joint academic activities were exercised by the US Army Europe Command. No current activities are known since the US Army departed Heidelberg.

In spite of the exacting and severe routine of the Round Hill School, Bancroft contributed frequently to the North American Review and to Walsh's American Quarterly; he also made a translation of Heeren's work on The Politics of Ancient Greece. In 1826 he published an oration in which he advocated universal suffrage and the foundation of the state on the power of the whole people. In 1830, without his knowledge, he was elected to the Massachusetts legislature, but refused to take his seat, and the next year he declined a nomination, though certain to have been elected, for the state senate.

His first wife was Sarah Dwight, of a rich family in Springfield, Massachusetts; they married in 1827 and had two sons. She died in 1837. He formed a second marriage with Mrs Elizabeth Davis Bliss, a widow with two children. Together they had a daughter.

In 1834 appeared the first volume of the History of the United States, which would appear over the next four decades (1834–74) and established his reputation. In 1835, he moved to Springfield, Massachusetts, where he completed the second volume of his history. The year of his move, he also drafted an address to the people of Massachusetts at the request of the Young Men's Democratic Convention.

Bancroft entered politics in 1837 when appointed by Martin Van Buren as Collector of Customs of the Port of Boston. Two of his own appointees in the office were Orestes Brownson and author Nathaniel Hawthorne. In 1844, Bancroft was the Democratic candidate for governor of Massachusetts but he was defeated. He called for the annexation of Texas as extending "the area of freedom" and, though a Democrat, opposed slavery.

Bancroft was elected a member of the American Antiquarian Society in 1838, and also served as its Secretary of Domestic Correspondence from 1877 to 1880.

In 1845, in recognition for his support at the previous Democratic convention, Bancroft was appointed to James Polk's cabinet as Secretary of the Navy, serving until 1846, when, for a month, he was acting Secretary of War.

Similarly, Bancroft studied so deeply the Oregon boundary dispute that in 1846, he was sent as minister plenipotentiary to London to work with the British government on the issue. There, he roomed with the Historian Macaulay and the poet Hallam. With the election of Whig Zachary Taylor as President, Bancroft's political appointment ended. On his return to the United States in 1849, he withdrew from public life.

Among his other speeches and addresses may be mentioned a lecture on "The Culture, the Support, and the Object of Art in a Republic," in the course of the New York Historical Society in 1852; and one on "The Office, Appropriate Culture, and Duty of the Mechanic."

Bancroft was elected an Associate Fellow of the American Academy of Arts and Sciences in 1863. In 1866, he was chosen by Congress to deliver the special eulogy on Lincoln.

In April 1864, at Bancroft's request, President Abraham Lincoln wrote out what would become the fourth of five known manuscripts of the Gettysburg Address. Bancroft planned to include the copy in Autograph Leaves of Our Country's Authors, which he planned to sell at a Soldiers' and Sailors' Sanitary Fair, in Baltimore, to raise money to care for the Union Army.

In 1867, President Andrew Johnson offered Bancroft the post of US minister to Prussia, enabling him to return to Germany. Bancroft remained in Berlin for seven years, and President Ulysses S. Grant appointed him minister to the German Empire in 1871. During his tenure in Berlin, Bancroft spent much time negotiating agreements with Prussia and the other north German states relating to naturalization and citizenship issues; they became known as the Bancroft Treaties in his honor.The treaties were the first international recognition of the right of expatriation. The principle has since incorporated in the law of nations.

Bancroft was an indefatigable researcher who had a thorough command of the sources, but his rotund romantic style and enthusiastic patriotism annoyed later generations of scientific historians, who did not assign his books to students. Furthermore, scholars of the "Imperial School" after 1890 took a much more favorable view of the benign intentions of the British Empire than he did.

His last official achievements are considered the greatest. In the San Juan arbitration case he displayed great versatility and skill ans won his case before the Mexican Emperor. He died in 1891 after being the last surviving member of the Polk cabinet.

Bancroft is one of 23 famous names on the $1 educational currency note of 1896.

The United States Navy has named several ships USS Bancroft for him, as well as the fleet ballistic missile submarine USS George Bancroft (SBN-643), and the mid-19th century United States Coast Survey schooner USCS Bancroft.

Vitzthum argues that Bancroft was the Historian as Artist and Philosopher. He used past events to exemplify his moral vision, based on his Unitarian faith in progress. The history of America exemplified the gradual unfolding of God's purpose for mankind – the development of religious and political liberty. The tone of moral certainty made his volumes popular, in combination with their grand artistic sweep, intensity, and coherence.