Hutton inherited from his father the Berwickshire farms of Slighhouses, a lowland farm which had been in the family since 1713, and the hill farm of Nether Monynut. In the early 1750s he moved to Slighhouses and set about making improvements, introducing farming practices from other parts of Britain and experimenting with plant and animal husbandry. He recorded his ideas and innovations in an unpublished treatise on The Elements of Agriculture.

Hutton was born in Edinburgh on 3 June 1726, OS one of five children of Sarah Balfour and william Hutton, a merchant who was Edinburgh City Treasurer. Hutton's father died in 1729, when he was three.

Hutton did not marry and had no legitimate children. Around 1747 he had a son by a Miss Edington, and though he gave his child James Smeaton Hutton financial assistance, he had little to do with the boy who went on to become a post-office clerk in London.

He was educated at the High School of Edinburgh (as were most Edinburgh children) where he was particularly interested in mathematics and chemistry, then when he was 14 he attended the University of Edinburgh as a "student of humanity", studying the classics. He was apprenticed to the Lawyer George Chalmers WS when he was 17, but took more interest in chemical experiments than legal work. At the age of 18, he became a physician's assistant, and attended lectures in Medicine at the University of Edinburgh. After three years he went to the University of Paris to continue his studies, taking the degree of Doctor of Medicine at Leiden University in 1749 with a thesis on blood circulation.

After his degree Hutton returned to London, then in mid-1750 went back to Edinburgh and resumed chemical experiments with close friend, James Davie. Their work on production of sal ammoniac from soot led to their partnership in a profitable chemical works, Manufacturing the crystalline salt which was used for dyeing, metalworking and as smelling salts and had been available only from natural sources and had to be imported from Egypt. Hutton owned and rented out properties in Edinburgh, employing a factor to manage this Business.

This developed his interest in meteorology and geology. In a 1753 letter he wrote that he had "become very fond of studying the surface of the earth, and was looking with anxious curiosity into every pit or ditch or bed of a river that fell in his way". Clearing and draining his farm provided ample opportunities. The Mathematician John Playfair described Hutton as having noticed that "a vast proportion of the present rocks are composed of materials afforded by the destruction of bodies, animal, vegetable and mineral, of more ancient formation". His theoretical ideas began to come together in 1760. While his farming activities continued, in 1764 he went on a geological tour of the north of Scotland with George Maxwell-Clerk, ancestor of the famous James Clerk Maxwell.

Between 1767 and 1774 Hutton had close involvement with the construction of the Forth and Clyde canal, making full use of his geological knowledge, both as a shareholder and as a member of the committee of management, and attended meetings including extended site inspections of all the works. At this time he is listed as living on Bernard Street in Leith. In 1777 he published a pamphlet on Considerations on the Nature, Quality and Distinctions of Coal and Culm which successfully helped to obtain relief from excise duty on carrying small coal.

In 1768 Hutton returned to Edinburgh, letting his farms to tenants but continuing to take an interest in farm improvements and research which included experiments carried out at Slighhouses. He developed a red dye made from the roots of the madder plant.

He had a house built in 1770 at St John's Hill, Edinburgh, overlooking Salisbury Crags. This later became the Balfour family home and, in 1840, the birthplace of the Psychiatrist James Crichton-Browne. Hutton was one of the most influential participants in the Scottish Enlightenment, and fell in with numerous first-class minds in the sciences including Mathematician John Playfair, Philosopher David Hume and Economist Adam Smith. Hutton held no position in the University of Edinburgh and communicated his scientific findings through the Royal Society of Edinburgh. He was particularly friendly with physician and Chemist Joseph Black, and together with Adam Smith they founded the Oyster Club for weekly meetings.

In 1783 he was a joint founder of the Royal Society of Edinburgh.

The idea that the Earth is alive is found in philosophy and religion, but the first scientific discussion was by James Hutton. In 1785, he stated that the Earth was a superorganism and that its proper study should be physiology. Although his views anticipated the Gaia hypothesis, proposed in the 1960s by scientist James Lovelock, his idea of a living Earth was forgotten in the intense reductionism of the 19th century.

Later in 1787 Hutton noted what is now known as the Hutton or "Great" Unconformity at Inchbonny, Jedburgh, in layers of sedimentary rock. As shown in the illustrations to the right, layers of greywacke in the lower layers of the cliff face are tilted almost vertically, and above an intervening layer of conglomerate lie horizontal layers of Old Red Sandstone. He later wrote of how he "rejoiced at my good fortune in stumbling upon an object so interesting in the natural history of the earth, and which I had been long looking for in vain." That year, he found the same sequence in Teviotdale.

In the Spring of 1788 he set off with John Playfair to the Berwickshire coast and found more examples of this sequence in the valleys of the Tour and Pease Burns near Cockburnspath. They then took a boat trip from Dunglass Burn east along the coast with the Geologist Sir James Hall of Dunglass. They found the sequence in the cliff below St. Helens, then just to the east at Siccar Point found what Hutton called "a beautiful picture of this junction washed bare by the sea". Playfair later commented about the experience, "the mind seemed to grow giddy by looking so far into the abyss of time". Continuing along the coast, they made more discoveries including sections of the vertical beds showing strong ripple marks which gave Hutton "great satisfaction" as a confirmation of his supposition that these beds had been laid horizontally in water. He also found conglomerate at altitudes that demonstrated the extent of erosion of the strata, and said of this that "we never should have dreamed of meeting with what we now perceived".

From 1791 Hutton suffered extreme pain from stones in the bladder and gave up field work to concentrate on finishing his books. A dangerous and painful operation failed to resolve his illness. He died in Edinburgh and was buried in the vault of Andrew Balfour, opposite the vault of his friend Joseph Black, in the now sealed south-west section of Greyfriars Kirkyard commonly known as the Covenanter's Prison.

The whole was entitled An Investigation of the Principles of Knowledge and of the Progress of Reason, from Sense to Science and Philosophy when the third volume was completed in 1794. Its 2,138 pages prompted Playfair to remark that "The great size of the book, and the obscurity which may justly be objected to many parts of it, have probably prevented it from being received as it deserves.”

Following criticism, especially the arguments from Richard Kirwan who thought Hutton's ideas were atheistic and not logical, Hutton published a two volume version of his theory in 1795, consisting of the 1788 version of his theory (with slight additions) along with a lot of material drawn from shorter papers Hutton already had to hand on various subjects such as the origin of granite. It included a review of alternative theories, such as those of Thomas Burnet and Georges-Louis Leclerc, Comte de Buffon.

It has been claimed that the prose of Principles of Knowledge was so obscure that it also impeded the acceptance of Hutton's geological theories. Restatements of his geological ideas (though not his thoughts on evolution) by John Playfair in 1802 and then Charles Lyell in the 1830s popularised the concept of an infinitely repeating cycle, though Lyell tended to dismiss Hutton's views as giving too much credence to catastrophic changes.

Though he saw his "principle of variation" as explaining the development of varieties, Hutton rejected the idea that evolution might originate species as a "romantic fantasy", according to palaeoclimatologist Paul Pearson. Influenced by deism, Hutton thought the mechanism allowed species to form varieties better adapted to particular conditions and provided evidence of benevolent design in nature. Studies of Charles Darwin's notebooks have shown that Darwin arrived separately at the idea of natural selection which he set out in his 1859 book On the Origin of Species, but it has been speculated that he had some half-forgotten memory from his time as a student in Edinburgh of ideas of selection in nature as set out by Hutton, and by william Charles Wells and Patrick Matthew who had both been associated with the city before publishing their ideas on the topic early in the 19th century.

Hutton also advocated uniformitarianism for living creatures  – evolution, in a sense – and even suggested natural selection as a possible mechanism affecting them: