Troisi was born into a large family in San Giorgio a Cremano, a town near Naples. His father was a train Engineer. Some of his family experiences were later told in his first films. After secondary school, Troisi wrote some poems inspired by his favourite author, Pier Paolo Pasolini, and, in 1969, started to play in a small local theatre together with some childhood friends (including Lello Arena and Enzo Decaro). The early death of his mother condemned Troisi to a harsh period of activity, which is said to have had a role in the development of his increasingly serious heart problems which were brought on during his teenage years from bouts of rheumatic fever. (In 1976 he had to visit the United States for a heart valve operation, the expenses for which were paid with the help of his friends.)

Troisi started his artistic career as a cabaret showman in 1972, as a member of the comic trio called "I Saraceni" ("The Saracens") and, later, "La Smorfia" (from the name of the "book of the numbers" traditionally used in Naples for lottery and tombola, but also meaning "the face", as in "to make a face"). His mates were De Caro and Arena. They gained national fame on the radio and increased it consistently from 1977 onwards eventually becoming TV stars with the shows Non Stop, La sberla (1978) and Luna Park (1979). Troisi soon gained the status of leader of the trio. He was noted for his use of facial mimicry and of apparently confused speech—in these he drew inspiration from such famous figures of Neapolitan comedy as Totò, and Eduardo and Peppino De Filippo.

Troisi wrote, directed, and starred in his first film, Ricomincio da tre ("I Start Over from Three") in 1981. He achieved wide success and critical praise, establishing himself as one of the most talented new Italian Directors of the 1980s. Like his second film, Ricomincio da tre is centered on the troublesome love life of a Neapolitan character, partly inspired by Troisi's youth, as well as featuring Lello Arena. Scusate il ritardo, similar to the preceding one, was released in 1983, and Massimo Troisi did have as co-starring Giuliana De Sio.

Troisi starred opposite Roberto Benigni in Non ci resta che piangere (1984), in which they play two friends who are accidentally transported back in time to the 15th century; there they meet Leonardo da Vinci and, upon realising which age they are in, travel to Spain to try to stop Christopher Columbus from discovering the Americas.

After some small acting roles, in 1987 Troisi directed Le vie del Signore sono finite, set during the Fascist era. The film won a Silver Ribbon for best screenplay. In the following years, he starred alongside Marcello Mastroianni, in Ettore Scola's Splendor (1989), Che ora è? (1989) and Il viaggio di Capitan Fracassa (1990). His last film as Director (also as Screenwriter and actor) was Pensavo fosse amore, invece era un calesse (1991), again centering on the everyday difficulties of love between a man and a woman (portrayed by Francesca Neri).

Troisi came to international fame through the success of Il Postino, directed by Michael Radford. Troisi died in 1994 of a heart attack in his sister's house in Ostia (Rome) twelve hours after the main filming on Il Postino had finished. It was reported that he postponed surgery to complete the film.