In April 1875, Ellis sailed on his father's ship for Australia; soon after his arrival in Sydney, he obtained a position as a master at a private school. After the discovery of his lack of training, he was fired and became a tutor for a family living a few miles from Carcoar. He spent a year there and then obtained a position as a master at a grammar school in Grafton. The headmaster had died and Ellis carried on the school for that year, but was unsuccessful.

Ellis returned to England in April 1879. He had decided to take up the study of sex, and felt his first step must be to qualify as a physician. He studied at St Thomas's Hospital Medical School now part of King's College London, but never had a regular medical practice. His training was aided by a small legacy and also income earned from editing works in the Mermaid Series of lesser known Elizabethan and Jacobean drama. He joined The Fellowship of the New Life in 1883, meeting other social reformers Eleanor Marx, Edward Carpenter and George Bernard Shaw.

In November 1891, at the age of 32, and reportedly still a virgin, Ellis married the English Writer and proponent of women's rights, Edith Lees. From the beginning, their marriage was unconventional, as Edith Lees was openly lesbian. At the end of the honeymoon, Ellis went back to his bachelor rooms in Paddington. She lived at Fellowship House. Their "open marriage" was the central subject in Ellis's autobiography, My Life.

Ellis was among the pioneering investigators of psychedelic drugs and the author of one of the first written reports to the public about an experience with mescaline, which he conducted on himself in 1896. He consumed a brew made of 3 Echinocacti (peyote) in the afternoon of Good Friday alone in his apartment in Temple, London. During the experience, lasting for about 24 hours, he noted a plethora of extremely vivid, complex, colourful, pleasantly smelling hallucinations, consisting both of abstract geometrical patterns and definite objects such as butterflies and other insects. He published the account of the experience in The Contemporary Review in 1898 (Mescal: A New Artificial Paradise). The title of the article alludes to an earlier work on the effects of mind-altering substances, an 1860 book Les Paradis artificiels by French poet Charles Baudelaire (containing descriptions of experiments with opium and hashish).

Ellis' views of auto-eroticism were very comprehensive, including much more than masturbation. Auto-eroticism, according to Ellis, includes a wide range of phenomena. Dr. Ellis states in his 1897 book Studies in the Psychology of Sex, that auto-eroticism ranges from erotic day-dreams, marked by a passivity shown by the subject, to “unshamed efforts at sexual self-manipulation witnessed among the insane.”

Dr. Ellis believed that the sense of smell, although ineffective at long ranges, still contributes to sexual attraction, and therefore, to mate selection. In his 1905 book, Sexual selection in man, Dr. Ellis makes a claim for the sense of smell in the role of sexual selection. He asserts that while, we have evolved out of a great necessity for the sense of smell, we still rely on our sense of smell with sexual selection. The contributions that smell makes in sexual attraction can even be heightened with certain climates. Ellis states that with warmer climes come a heightened sensitivity to sexual and other positive feelings of smell among normal populations. Because of this, he believes people are often delighted by odors in the East, particularly in India, in “Hebrew and Mohammedan lands.” Ellis then continues by describing the distinct odors in various races, noting that the Japanese race has the least intense of bodily odors. Ellis concludes his argument by stating, “On the whole, "it may be said that in the usual life of man odors play a not inconsiderable part and raise problems which are not without interest, but that their demonstrable part in actual sexual selection is comparatively small.”

Ellis was strongly opposed to the idea of castration for eugenic purposes. In 1909, regulations were introduced at the Cantonal Asylum in Bern, which allowed those deemed ‘unfit’ and with strong sexual inclinations to be mandatorily sterilized. In a particular instance, several men and women, including epileptics and pedophiles were castrated, some of whom voluntarily requested it. While the results were positive, in that none of the subjects were found guilty of any more sexual offences, Ellis remained staunchly opposed to the practice. His view on the origin of these inclinations was that sexual impulses do not reside in the sexual organs, but rather they persist in the brain. Moreover, he posited that the sexual glands provided an important source of internal secretions vital for the functioning of the organism, and thus their removal could greatly injure the patient.

Ellis studied what today are called transgender phenomena. Together with Magnus Hirschfeld, Havelock Ellis is considered a major figure in the history of sexology to establish a new category that was separate and distinct from homosexuality. Aware of Hirschfeld's studies of transvestism, but disagreeing with his terminology, in 1913 Ellis proposed the term sexo-aesthetic inversion to describe the phenomenon. In 1920 he coined the term eonism, which he derived from the name of a historical figure, Chevalier d'Eon. Ellis explained:

Ellis may have developed psychological concepts of autoerotism and narcissism, both of which were later developed further by Sigmund Freud. Ellis's influence may have reached Radclyffe Hall, who would have been about 17 years old at the time Sexual Inversion was published. She later referred to herself as a sexual invert and wrote of female "sexual inverts" in Miss Ogilvy Finds Herself and The Well of Loneliness. When Ellis bowed out as the star witness in the trial of The Well of Loneliness on 14 May 1928, Norman Haire was set to replace him but no witnesses were called.

Ellis resigned from his position of Fellow of the Eugenics Society over their stance on sterilization in January 1931.

Ellis spent the last year of his life at Hintlesham, Suffolk, where he died in July 1939. He is buried at Golders Green Crematorium, north London.

Ellis viewed birth control as merely the continuation of an evolutionary progression, noting that natural progress has always consisted of increasing impediments to reproduction, which lead to a lower quantity of offspring, but a much higher quality of them. From a eugenic perspective, birth control was an invaluable instrument for the elevation of the race. However, Ellis noted that birth control could not be used randomly in a way that could have a detrimental impact by reducing conception, but rather needed to be used in a targeted manner to improve the qualities of certain ‘stocks.’ He observed that it was unfortunately the ‘superior stocks’ who had knowledge of and used birth control while the ‘inferior stocks’ propagated without checks. Ellis’ solution to this was a focus on contraceptives in education, as this would disseminate the knowledge in the populations that he felt needed them the most. Ellis argued that birth control was the only available way of making eugenic selection practicable, as the only other option was wide-scale abstention from intercourse for those who were ‘unfit’.

Ellis claims that sexual self-excitement is known to happen at an early age. He references authors like Marc, Fonssagrives, and Perez in France who published their findings in the nineteenth century. These early ages are not strictly limited to ages close to puberty as can be seen in their findings. These authors provide cases for children of both sexes who have masturbated from the age of three or four. Ellis references Robie’s findings that boys’ first sex feelings appear between the ages of five and fourteen. For girls, this age ranges from eight to nineteen. For both sexes, these first sexual experiences arise more frequently during the later years as opposed to the earlier years. Ellis then references Hamilton’s studies that found twenty percent of males and fourteen percent of females have pleasurable experiences with their sex organs before the age of six. This is only supplemented by Ellis’ reference to Katharine Davis’ studies, which found that twenty to twenty-nine percent of boys and forty-nine to fifty-one percent were masturbating by the age of eleven. However, in the next three years after, boys’ percentages exceeded that of girls.