Fridman was born in 1964 in Lviv, Ukraine, USSR, where he spent his youth. He graduated from high school in Lviv in 1980, where he won school olympiads in physics and mathematics. He was denied entrance to Moscow’s top physics college because of his Jewish heritage, and instead attended the Moscow Institute of Steel and Alloys. He worked various jobs while a college student in Moscow, including washing windows and founding and co-owning a student discothèque named Strawberry Fields. He also led a group of students who would queue for tickets at popular Moscow plays, and then use the tickets as hard currency to barter for rare goods and favours. Having studied metallurgical engineering, he graduated with distinction from the Moscow Institute of Steel and Alloys in 1986.

After graduation Fridman worked as a metallurgical design Engineer in Elektrostal Metallurgical Works, a state electrical machinery factory, from 1986 to 1988. As Russian Politician Mikhail Gorbachev began to open the economy in the late 1980s, in 1988 Fridman established a window-washing Business, an apartment rental agency for foreigners, a company that sold used computers, and a company that imported cigarettes and perfumes, with fellow friends from college, employing students from various Moscow universities. His Business mentor was his grandmother, who had owned a kitchenware shop in Lviv. According to Fridman, she had warned him, "Never have dealings with the Reds."

In 1988, along with German Khan and Alexey Kuzmichev, Fridman co-founded Alfa-Photo (also transliterated as Alfa-Foto), which imported photography chemicals. In 1989 the three partners founded Alfa-Eco (Alfa-Echo, Alfa-Eko, Alfa-Ekho), a commodities and eventually oil trading firm, and Alfa Capital (Alfa Kapital), an investment firm. Alfa-Eco and Alfa Capital developed into Alfa Group Consortium. The company, which initially focused on computer trading and copy machine maintenance, expanded into imports and exports and commodities trading, eventually becoming one of Russia’s largest privately owned financial-industrial conglomerates, with interests in industries such as telecommunications, banking, Retail, and oil.

Using $100,000 of his profit from his businesses to pay the required fee, in January 1991 Fridman co-founded Alfa-Bank. The company grew to become one of the largest private banks in Russia. Alfa Group's later divisions include Rosvodokanal, a private water utility; AlfaStrakhovanie, a Diversified insurance company; A1 Group, an investment company; and X5 Retail Group, a large chain of food Retailers.

Alfa Group flourished considerably after Fridman recruited Petr Aven, the former Minister of Foreign Economic Relations for the Russian Federation; in 1994 Aven became President and Chairman of Alfa Bank. By 1996, thanks to the success of Alfa Bank and Alfa Group, Fridman and Aven were cited by the Financial Times as among the seven businessman and Bankers that controlled most of the economy and media in Russia, and who helped bankroll Boris Yeltsin’s re-election campaign in 1996.

Fridman's Alfa Group founded the Perekrestok (also transliterated Perekriostok) chain of supermarkets in Moscow in 1995. Through a merger with the Pyatyorochka (also transliterated Pyaterochka) supermarket chain, which had been founded in St. Petersburg in 1999 by Alexander Girda and Andrey Rogachev, Alfa Group founded the X5 Retail Group in 2006. X5 acquired another grocer, Kopeyka, for $1.65 billion in December 2010. X5 is Russia's largest food retailer in terms of sales.

In 1996 Fridman was one of the founders of the Russian Jewish Congress, and he has been active in it since then, including having been its vice President and head of its cultural committee. He is a major donor to the European Jewish Fund, which promotes inter-religious dialogue. In 2007, Fridman along with Stan Polovets, Alexander Knaster, Petr Aven, and German Khan founded the Genesis Philanthropy Group, whose purpose is to develop and enhance Jewish identity among Russian-speaking Jews worldwide. The Genesis Prize, which the group founded in 2012, is a million-dollar annual prize for Jewish contributions to humanity. Fridman was also one of the major funders of the Holocaust memorial project at Babi Yar in Kiev, Ukraine, which was launched in 2016.

In 1997, Fridman had collaborated with Len Blavatnik and Viktor Vekselberg to purchase the state-owned TNK (Tyumen Oil Company), an oil company in Siberia, for $800 million. In February 2003, the British multinational oil and gas company BP agreed to form the TNK-BP joint venture with the AAR (Alfa-Access-Renova) consortium, which included Alfa Group, Blavatnik's Access Industries, and Vekselberg's Renova. After the merger, TNK-BP became the third largest oil Producer in Russia, and one of the top ten largest private oil companies in the world. Fridman served as TNK-BP chairman for nine years, and CEO for three years.

Fridman and Aven sold off most of their Russian government securities in early August 1998, prior to the ruble crisis of 17 August 1998, and emerged relatively unhurt from the 1998 Russian financial crisis. During the crisis, Alfa Bank used its holdings related to TNK to avoid a debt default, and was one of the few Russian banks at the time to continue to allow customer withdrawals.

Prior to the TNK-BP joint venture, in 1999 Fridman had thwarted BP by capturing much of BP's stake in the Siberian oil company Sidanko, via bankruptcy maneuvers widely regarded as unfair practices. And although TNK-BP was highly successful financially, Fridman's relationship with BP during the TNK-BP years was contentious, and included blocking BP's 2011 planned partnership with Rosneft for Arctic oilfield exploration.

Fridman is a member of numerous public facing bodies, including the National Council on Corporate Governance in Russia and a boardmember of the Russian Union of Industrialists and Entrepreneurs. In February 2001, he became a member of the Council for Entrepreneurship at the Government of the Russian Federation. He was elected as a member of the Public Chamber of Russia in November 2005. Since 2005, he has been a Russian representative on the international advisory board of the Council on Foreign Relations.

In 2003, Fridman was honored with the Golden Plate Award from the Academy of Achievement in Washington, presented by former U.S. President Bill Clinton, and he was named one of "The Stars of Europe: 25 Leaders at the forefront of change" by BusinessWeek. Fridman was given the Darin Award from the Russian Academy of Business in 2004 for his contribution to the development of domestic Business and entrepreneurship. In 2004 he was also included in the Financial Times list of 25 Business executives named "Leaders of the New Europe", and he was named one of Europe's 25 Most Powerful People in Business by Fortune. Fridman and Petr Aven for Alfa Bank were among the laureates of the "Best Russian Brand" awards by the World Brand Academy in 2006. Forbes Russia named Fridman the Russian Businessman of the Year in 2012 and 2017. In 2013 the Russian Business daily Kommersant presented him with the Businessman of the Year Award, during the week of the St. Petersburg International Economic Forum.

In 2005, a United States district court in Washington, D.C. dismissed a 2000 libel suit by Fridman and Petr Aven against the Center for Public Integrity over an online article which included a suggestion that they had been involved in drug-running and organized crime; the federal judge ruled that there was no evidence of actual malice on the part of the publication and that Fridman and Aven were limited public figures regarding the public controversy involving corruption in post-Soviet Russia.

In 2003, two "elite dachas" owned by the Russian government were sold below market value, one to Fridman and another to former Russian prime-minister Mikhail Kasyanov. The sales caught the attention of the press in July 2005, with State Duma member and Journalist Aleksandr Khinshtein stating that the sales were done without the mandatory media announcement of auction. Khinshtein also alleged a preferential loan from Fridman to Kasyanov, which Fridman denied. Fridman stated that the property's asking price was low because the building was dilapidated and sold without land. Radio Free Europe reported that Khinshtein's investigation appeared to be an attempt to intimidate Kasyanov, who aspired to head anti-Putin forces. In early 2006, the Moscow Court of Arbitration ruled that the two houses should be returned to the state, maintaining Fridman's right to a refund but arguing the proper procedures were not followed during the privatization. On 1 March 2006, government officials responsible for the sale of the two properties were charged with misappropriation of entrusted property in an especially large amount by an organized group.

In 2011 he founded the annual Alfa Jazz Fest, which is funded by Alfa Bank, in his hometown of Lviv, Ukraine, and in 2014 launched the Alfa Future People Festival, an annual electronic-music festival held on the banks of the Volga River in the Nizhny Novgorod area.

In 2012 Fridman partnered with American real-estate developer Jack Rosen in a joint venture to invest $1 billion in distressed real estate properties along the U.S. East Coast.

In 2013 LetterOne also formed L1 Energy, an Energy investment vehicle, initially focused particularly on undervalued international oil and gas assets during the slump in oil prices. John Browne (Lord Browne) was appointed to its advisory board, and in March 2015 became its chairman.

Fridman was based for many years in Moscow, often spending time in European cities such as London, Paris, Amsterdam, and Hamburg. In 2015 he moved to London, and by 2016 had purchased Athlone House to be his primary residence. He is divorced and has four children. He has stated that in his will, his fortune will be left to charity.

In July 2016, Fridman and Economist Anatole Kaletsky were interviewed by The Milken Institute in a feature titled "Searching for Growth in an Unstable Global Economy". In the article they talk about the emergence of a new, "Indigo Era" of economics based on creativity and digital skills rather than on natural resources. The feature was a followup to an article Fridman had published in the Financial Times the year before, in which he theorized that "the oil price had [previously] remained high because people perceived there was a shortage", and that the global economy was facing a "new phase in which people would not fear the end of oil". In October 2016, Fridman spoke as part of a panel discussion at the Bruegel think tank in Brussels, focusing discussion on modern trends in the global economy and the implications for Europe.

In May 2017 Fridman, along with fellow Alfa Bank owners Petr Aven and German Khan, filed a defamation lawsuit against BuzzFeed for publishing the unverified Donald Trump–Russia dossier, which alleges financial ties and collusion between Putin, Trump, and the three bank owners. In October 2017 Fridman, Aven, and Khan also filed a libel suit against the private-investigation firm Fusion GPS and its founder Glenn Simpson, who had commissioned Christopher Steele to compile the dossier, for circulating the dossier among journalists and allowing it to be published.

In January 2018, due to concerns over possible sanctions stemming from the 2017 U.S. Congressional sanctions on Russia, Fridman announced that Alfa Bank was phasing out its holdings in Russia's defense industry.