Klaus Günter Karl Nakszynski was born to German nationals in Zoppot, Germany (now Sopot, Poland) in 1926. His father, Bruno Nakszynski, a German of Kashubian descent, was a failed opera singer turned pharmacist; his mother, Susanne (née Lutze), was a nurse and the daughter of a local pastor. Klaus had three older siblings: Inge, Arne and Hans-Joachim.

Due to the Great Depression, the family was unable to make a living in Danzig and moved to Berlin in 1931, where they also struggled. They settled in a flat in the Wartburgstraße 3, in the district of Schöneberg, and took German citizenship. In 1936, Kinski attended the Prinz-Heinrich-Gymnasium in Schöneberg.

Kinski was conscripted at the age of 17 into the German Wehrmacht some time in 1943, and served in the army. He saw no action until the winter of 1944, when his unit was transferred to the Netherlands. He was wounded and captured by the British on his second day of combat.

There he played his first roles on stage, taking part in shows intended to maintain morale among the prisoners. By May 1945, at the end of the war in Europe, the German POWs were anxious to return home. Kinski had heard that sick prisoners were to be returned first, and tried to qualify by standing outside naked at night, drinking urine and eating cigarettes. He remained healthy but finally was returned to Germany in 1946, after spending a year and four months in captivity.

After his return to Germany, Kinski started out as an actor, first at a small touring company in Offenburg, where he used his newly adopted name of Klaus Kinski. In 1946, he was hired by the renowned Schlosspark-Theater in Berlin. The next year he was fired by the manager in 1947 due to his unpredictable behavior. Other companies followed, but his unconventional and emotionally volatile behavior regularly got him into trouble.

Kinski's first film role was a small part in the 1948 film Morituri. He appeared in several German Edgar Wallace movies, and had bit parts in the American war films Decision Before Dawn (1951) and A Time to Love and a Time to Die (1958). He starred as the doomed Jewish refugee in The Counterfeit Traitor with william Holden. In Alfred Vohrer's Die toten Augen von London (1961), his character refused any personal guilt for his evil deeds and claimed to have only followed the orders given to him. Kinski's performance reflected post-war Germany's reluctance to take responsibility for what had happened during World War II.

In 1950, Kinski stayed in a psychiatric hospital for three days because he stalked his theatrical sponsor, on whom he had a one-sided crush, and eventually tried to strangle her. Medical records from the period listed a preliminary diagnosis of schizophrenia but the conclusion was psychopathy. Around this time Kinski became unable to secure film roles, and, in 1955, he reportedly attempted suicide twice.

For three months in 1955, Kinski lived in the same boarding house as a 13-year-old Werner Herzog, who would later direct him in a number of films. In the 1999 documentary My Best Fiend, Herzog described how Kinski locked himself in the communal bathroom for 48 hours and reduced everything to bits.

In March 1956, he made a single guest appearance at Vienna's Burgtheater in Goethe's Torquato Tasso. Although respected by his colleagues, among them Judith Holzmeister, and cheered by the audience, Kinski did not gain a permanent contract. The Burgtheater's management became aware of the actor's earlier difficulties in Germany. He unsuccessfully tried to sue the company.

He relocated to Italy during the late 1960s, and had roles in numerous Spaghetti Westerns, including For a Few Dollars More (1965), A Bullet for the General (1966), The Great Silence (1968), and A Genius, Two Partners and a Dupe (1975). He turned down a role in Raiders of the Lost Ark, describing the script as "moronically shitty". In 1977 he starred as the guerrillero Wilfried Böse in Operation Thunderbolt, based on the events of the 1976 Operation Entebbe.

Kinski's work with Director Werner Herzog brought him international recognition. They made five films together: Aguirre: The Wrath of God (1972), Woyzeck (1978), Nosferatu the Vampyre (1979), Fitzcarraldo (1982) and Cobra Verde (1987). He played Kurtz, an Israeli intelligence officer, in The Little Drummer Girl, a feature film by George Roy Hill in 1984. It also starred Diane Keaton as Charlie.

Kinski co-starred as an evil killer from the Future in a 1987 Sci-Fi based TV film Timestalkers with william Devane and Lauren Hutton. His last film (which he wrote and directed) was Kinski Paganini (1989), in which he played the legendary Violinist Niccolò Paganini.

Kinski published his autobiography, All I Need Is Love, in 1988 (reprinted in 1996 as Kinski Uncut). The book infuriated many and prompted his second daughter Nastassja Kinski to file a libel suit against him, which she soon withdrew.

Kinski died on 23 November 1991 of a sudden heart attack at his home in Lagunitas, California. His body was cremated and his ashes were scattered into the Pacific Ocean.

Also in 1999, Director David Schmoeller released a short film entitled Please Kill Mr. Kinski, which relates stories of Kinski's erratic and disruptive behavior on the set of his 1986 film Crawlspace. The film features behind-the-scenes footage of Kinski's various confrontations with Director and crewmembers, along with Schmoeller's account of the events.

In 2006, Christian David published the first comprehensive biography of Kinski, based on newly discovered archived material, personal letters and interviews with the actor's friends and colleagues. Peter Geyer published a paperback book of essays on Kinski's life and work.

In an interview published in the online issue of the German tabloid Bild on 13 January 2013, Kinski's younger daughter, Nastassja, Pola's half-sister, said their father would embrace her in a sexual manner when she was 4–5 years old, but never had sex with her. Nastassja has expressed support for Pola and said that she was always afraid of their father, whom she described as an unpredictable tyrant.