Siddiqui lives in Mumbai with his younger brother, Shamas Nawab Siddiqui who is a Director. Nawazuddin is married to Anjali and they have a daughter, Shora, and a son who was born on the actor's 41st birthday.

Siddiqui was born on 19 May 1974 in Budhana, a small town and tehsil in Muzaffarnagar district, Uttar Pradesh, India, into a zamindari Muslim family of Numberdars. He is the eldest of his eight siblings.

Siddiqui went to the National School of Drama, New Delhi. After graduating from NSD in 1996, he moved to Mumbai.

Siddiqui made his Bollywood debut in 1999, with a small role in the Aamir Khan starrer Sarfarosh. He then appeared in Ram Gopal Varma's Shool (1999), Jungle (2000); and Rajkumar Hirani's Munnabhai MBBS (2003). After moving to Mumbai he tried to get work in television serials, but did not achieve much success. He did a short film, The Bypass in 2003, where he appeared with Irrfan Khan. Beyond that between 2002–05, he was largely out of work, and lived in a flat he shared with four other people, and survived by conducting occasional acting workshops. In 2004, which was one of the worst years of his struggle, he couldn't pay any rent. He asked an NSD senior if he could stay with him. The senior allowed him to share his apartment in Goregaon if he was willing to cook meals for him.

In 2009, he appeared in a cameo role in the song "Emotional Atyachar" in the movie Dev D in his role of Rangila, along with his duet partner Rasila (known together as Patna ke Presley). In the same year he appeared in New York (2009). However, it was his role of a Journalist in Anusha Rizvi's Peepli Live (2010), that first got him wide recognition as an actor. In 2012, he appeared in Prashant Bhargava's Patang : The Kite (2012) which premiered at the Berlin International Film Festival and the Tribeca Film Festival, for which Siddiqui's performance was praised by film critic Roger Ebert, a role which "transformed his acting style". The film was subsequently released in the U.S. and Canada, and garnered much attention with rave reviews from the New York Times.

Siddiqui was awarded the Special Jury Award at the 60th National Film Awards 2012, for his work in the films Kahaani, Gangs of Wasseypur, Dekh Indian Circus and Talaash.

In 2015, Siddiqui's films Bajrangi Bhaijaan and Manjhi - The Mountain Man were released, and he was praised for his roles. Siddiqui appeared in a film based in Gujarat, titled Haraamkhor. For his performance in Haramkhor, he was awarded "Best Actor" at the New York Indian Film Festival. Siddiqui received the Special Jury Award at the 2012 National Film Awards. and the Filmfare Award for Best Supporting Actor in 2013.

Siddiqui's memoir An Ordinary Life was published on 25 October 2017, narrating, alongside his journey to stardom, the minutest details of his love affairs, the account of one, with his Miss Lovely co-star Niharika Singh, raising controversy; and the book was withdrawn a couple of days later, due to a complaint filed with the National Commission for Women (NCW) by a Delhi Lawyer on Niharika Singh's behalf, and a resultant backlash.