Inder Kumar Gujral was born on 4 December 1919 in a Punjabi Hindu Khatri family to Avtar Narain and Pushpa Gujral in the village of Parri Darvaiza, Jhelum in undivided Punjab in British India. He studied at D.A.V. College, Hailey College of Commerce and Forman Christian College University, Lahore. He also participated in the Indian independence movement and was jailed in 1942 during the Quit India Movement. As a student, he became a member of the Communist Party of India. He also has two sisters, Uma Nanda and Sunita Judge. On 26 May 1945, Inder Kumar Gujral married Shiela Gujral (24 January 1924 – 11 July 2011) and had two sons, Naresh Gujral (born 19 May 1948), who is a Rajya Sabha MP, and Vishal Gujral. His younger brother Satish Gujral is a world renowned Painter and Sculptor.

Gujral became vice-president of the New Delhi Municipal Committee in 1958 and joined the Congress party (INC) in 1964. He was close to Indira Gandhi and became a member of the Rajya Sabha in April 1964. During the emergency of June 1975, Gujral was Minister of Information and Broadcasting, where he was in charge of the media during a time of censorship in India and was in charge of Doordarshan. He again was selected to the Rajya Sabha to serve until 1976. He also served as Water Resources Minister. Later, Gujral was appointed Ambassador of India to the Soviet Union by Indira Gandhi and stayed on during the tenures of Morarji Desai and Charan Singh. He was rumoured to have been shunted out of the ministry due to conflicts with the prime minister's son, Sanjay Gandhi, over media censorship, and was replaced by Vidya Charan Shukla, who had no qualms following party lines on the matter; he was then moved to the Planning Ministry.

Gujral resigned from the Indian National Congress party in the 1980s. Then he joined the Janata Dal. In the Indian general election, 1989, Gujral was elected from Jalandhar in Punjab. He served as Minister of External Affairs in Prime Minister V. P. Singh's eleventh cabinet of India. In 1989, Singh sent him to Srinagar to negotiate with the perpetrators of the 1989 kidnapping of Rubaiya Sayeed. He also brought about controversy during the Gulf War when he hugged Saddam Hussein as a show-of-good-faith to ensure Indian expatriates would be safe. In the Indian general election, 1991, Gujral contested from Patna in Bihar. However, the election was countermanded following complaints of 'irregularities'. In 1992, Gujral was selected to the Rajya Sabha with the help of Lalu Prasad Yadav.

Subsequent to the 1996 election, when the United Front government was formed under the premiership of H. D. Deve Gowda, Gujral was again named Minister of External Affairs. During this tenure, he developed the 'Gujral Doctrine' which emphasised better relations with India's neighbours and was refined when he became prime minister. He also served as Union Minister or Minister of State of several other portfolios—Communications and Parliamentary Affairs, Information and Broadcasting, Works and Housing and Planning.

On 28 August 1997, the Jain Commission report was submitted to the government and was leaked on 16 November. The commission had inquired into the conspiracy aspects of the Rajiv Gandhi assassination and reportedly criticised the Dravida Munnetra Kazhagam (DMK), amongst others such as the Narasimha Rao government, for tacitly supporting Tamil militants accused in Gandhi's assassination. The DMK was part of the ruling coalition at the center and had ministers in the Union Cabinet. The Congress first demanded the tabling of the report on the floor of the parliament, which was refused by Gujral, who feared a battle between the DMK and the Tamil Maanila Congress would lead to the DMK's withdrawal from the government. Gujral later formed a Joint Parliamentary Committee to study the report after informing Sitaram Keshri of the decision, to which Keshri acceded. INC parliamentary party leader Sharad Pawar said they would call for the resignation of anyone implicated in the report. Gujral convened the government to inform them of the updates and said it supported the DMK. The DMK's Industry Minister Murasoli Maran said: "We are part of the United Front. We will stand and fall together. I am hundred per cent confident of that. If it were so easy to break the United Front, then it will be called the disunited front. No one is going to ditch their colleagues for a few loaves of power. We have no reason to quit at all. The report is full of recycled news. There is nothing startling about it, everybody already knows what the report is saying. A Madras court is expected to give its verdict on a Criminal case on the assassination on January 28. Let us wait till then to know who was involved in the dastardly act. Until then, all this is disinformation." However, the Tamil Maanila Congress called for the DMK, who were in a coalition government in Tamil Nadu, to share all actions it would undertake. The report was tabled on 20 November 1997. The same day there were angry scenes in parliament as the INC then called for the DMK's removal from the cabinet and refused to partake in any parliamentary debate until that happened. Speaker P.A. Sangma then adjourned the house. The INC finally withdrew support from his government on 28 November after Gujral sent Kesri a letter saying he would not dismiss any DMK Leaders. Gujral resigned following the withdrawal and sent a letter to President K. R. Narayanan that read: "My government has lost its majority and does not want to continue in office on moral grounds," but did not call for the dissolution of parliament. The President accepted the resignation, but asked for Gujral to stay on in an interim capacity. INC General Secretary Oscar Fernandes then said: "All the secular parties are welcome to support a government which will be attempted by the Congress." The United Front's leader Chandrababu Naidu got the support of all the constituents saying they would neither support the INC nor the Bharatiya Janata Party, as did the TMC, saying they would not allow a "U.P.-like situation to happen in the centre." In similar measure, BJP leader M. Venkaiah Naidu said the party would "throttle" INC attempts to form a new government. The President then dissolved parliament on 4 December, triggering a snap election.

Following a series of attacks attributed by the Indian media and government to originating from and planned in Pakistan throughout the 2000s, culminating with the 2008 Mumbai attacks, the Gujral Doctrine was criticised by the Indian media. Following the attack, India Today said targeted, covert strikes against Pakistani organisation, such as Lashkar-e-Taiba, were a "capability that I.K. Gujral dismantled as prime minister over a decade ago will take over a year to rebuild." However, it was also praised in the media.

Gujral's hobbies included poetry and he spoke Urdu and was, after his death, eulogised as a lover of the language by Maulana Azad National Urdu University, an institution where he held the position of chancellor. His wife Sheila Gujral, who had been ill, died on 11 July 2011. She was an acclaimed poet. The couple had two sons, Naresh, who is a Shiromani Akali Dal MP in the Rajya Sabha, and Vishal. The couple also have two granddaughters and a grandson. His late niece, Medha, was Director Shekhar Kapur's first wife and later popular bhajan singer Anup Jalota's third wife.

Gujral was admitted at Medanta Hospital in Gurgaon, Haryana (part of the National Capital Region), on 19 November 2012, after being diagnosed with a lung infection. He had suffered a serious chest infection a few days before being admitted to the hospital following more than a year of dialysis. His health deteriorated in the hospital and was reported to be "very critical". On 27 November, he fell unconscious and his urine output system stopped working. Gujral succumbed to his ailments on 30 November 2012, four days short of his 93rd birthday. His body lay in state at his official residence, 5 Janpath, until noon the next day. The Government of India declared a seven-day period of state mourning and cancelled official functions until 6 December. He was given a state funeral at 15:00 on 1 December near Samata Sthal. His death was announced to parliament by Home Minister Sushil Kumar Shinde, following which both houses adjourned. On 3 December, condolence references were held for him.

The snap election was held in February–March 1998. Gujral contested again from Jalandhar as Janata Dal candidate with the support of the Shiromani Akali Dal. The Akali Dal, though a part of BJP-led coalition, opted to support Gujral because during his Prime Ministerial tenure, Gujral declared that the central government will share the expenses against the insurgency in Punjab during the 1980s and early 1990s, along with the state government of Punjab.

He wrote in his autobiography of the doctrine: "The logic behind the Gujral Doctrine was that since we had to face two hostile neighbours in the north and the west, we had to be at ‘total peace’ with all other immediate neighbours in order to contain Pakistan’s and China’s influence in the region."

The Gujral Doctrine is a set of five principles to guide the conduct of foreign relations with India’s immediate neighbours, notably Pakistan, as spelt out by Gujral. The doctrine was later termed as such by Journalist Bhabani Sen Gupta in his article, India in the Twenty First Century in International Affairs. These principles are, as he set out at Chatham House in September 1996 (which he later reiterated at the Bandaranaike Centre for International Studies: