Shyama Prasad had three brothers who were: Rama Prasad who was born in 1896, Uma Prasad who was born in 1902 and Bama Prasad Mukherjee who was born in 1906. Rama Prasad became a judge in High Court of Calcutta while Uma became famed as a trekker and a travel Writer. He also had three sisters who were: Kamala who was born in 1895, Amala who was born in 1905 and Ramala in 1908. He was married to Sudha Devi for 11 years and had five children – the last one, a four-month-old son, died from diphtheria. His wife died of double pneumonia shortly afterwards in 1933 or 1934. Shyama Prasad refused to remarry after her death. He had two sons, Anutosh and Debatosh, and two daughters, Sabita and Arati. His grandniece Kamala Sinha served as the Minister of State for External affairs in the I. K. Gujral ministry.

Shyama Prasad Mukherjee was born in a Bengali Hindu family on 6 July 1901 in Calcutta (Kolkata). His father was Ashutosh Mukherjee, a judge of the High Court of Calcutta, Bengal, who was also Vice-Chancellor of the University of Calcutta. His mother was Jogamaya Devi Mukherjee.

He enrolled in Bhawanipur's Mitra Institution in 1906 and his behaviour in school was later described favourably by his teachers. In 1914, he passed his matriculation examination and was admitted into Presidency College. He stood seventeenth in the Inter Arts Examination in 1916and graduated in English, securing the first position in first class in 1921. He was married to Sudha Devi on 16 April 1922. Mukherjee also completed an M.A. in Bengali, being graded as first class in 1923 and also became a fellow of the Senate in 1923. He completed his B.L. in 1924.

He enrolled as an advocate in Calcutta High Court in 1924, the same year in which his father had died. Subsequently, he left for England in 1926 to study at Lincoln's Inn and was called to the English Bar in the same year. In 1934, at the age of 33, he became the youngest Vice-Chancellor of the University of Calcutta; he held the office until 1938. During his term as Vice-Chancellor, Rabindranath Tagore delivered the University Convocation Address in Bengali for the first time, and the Indian vernacular was introduced as a subject for the highest examination. Mukherjee received the D.Litt from Calcutta University on 26 November, 1938.

Mukherjee joined the Hindu Mahasabha in Bengal in 1939 and became its acting President that same year. He was appointed as the working President of the organisation in 1940. In February 1941, Mukherjee told a Hindu rally that if Muslims wanted to live in Pakistan they should "pack their bag and baggage and leave India ... [to] wherever they like". He was elected as the President of Akhil Bharatiya Hindu Mahasabha in 1943. He remained in this position till 1946, with Laxman Bhopatkar becoming the new President in the same year.

Mukherjee started his political career in 1929, when he entered the Bengal Legislative Council as an Indian National Congress (INC) candidate representing Calcutta University. However, he resigned the next year when the INC decided to boycott the legislature. Subsequently, he contested the election as an independent candidate and was elected in the same year. In 1937, he was elected as an independent candidate in the elections which brought the Krishak Praja Party-All India Muslim League coalition to power. He served as the Finance Minister of Bengal Province in 1941–42 under A.K. Fazlul Haq's Progressive Coalition government which was formed on 12 December 1941 after the resignations of Muslim League ministers of the government. During his tenure, his statements against the government were censored and his movements were restricted. He was also prevented from visiting the Midnapore district in 1942 when severe floods caused a heavy loss of life and property. He resigned on 20 November 1942 accusing the British government of trying to hold on to India under any cost and criticised its repressive policies against the Quit India Movement. After resigning, he mobilised support and organised relief with the help of Mahabodhi Society, Ramakrishna Mission and Marwari Relief Society. In 1946, he was again elected as an independent candidate from the Calcutta University. He was elected as a member of the Constituent Assembly of India in the same year.

Shyama Prasad was also affiliated with the Buddhist Mahabodhi Society. In 1942, he succeeded Dr. M.N. Mukherjee to become the President of the organisation. The relics of Gautam Buddha's two disciples Sariputta and Maudgalyayana, discovered in the Great Stupa at Sanchi by Sir Alexander Cunningham in 1851 and kept at the British Museum, were brought back to India by HMIS Tir. A ceremony attended by politicians and Leaders of many foreign countries was held on the next day at Calcutta Maidan. They were handed over by Nehru to Mukherjee, who later took these relics to Cambodia, Burma, Thailand and Vietnam. Upon his return to India, he placed the relics inside the Sanchi Stupa in November 1952.

He was also the President of Akhil Bharatiya Hindu Mahasabha from 1943 to 1946. Mukherjee was strongly opposed to Article 370 seeing as a threat to unity of the country and fought against it inside and outside the parliament with one of the goals of Bharatiya Jana Sangh being abrogation of the article. He died in 1953 under mysterious circumstances.

Mukherjee's role in fighting for Bengal was featured in the movie 1946 Calcutta Killings, in which Gajendra Chauhan played the role of Mukherjee.

Prime Minister Jawaharlal Nehru inducted Mukherjee into the Interim Central Government as a Minister for Industry and Supply on 15 August 1947. Mukherjee began to have differences with Mahasabha after the assassination of Mahatma Gandhi, in which the organisation was blamed by Sardar Patel for creating the atmosphere that led to the killing. Mukherjee suggested the organisation suspend its political activities. Shortly after it did, in December 1948, he left. One of his reasons was the rejection of his proposal to allow non-Hindus to become members.

Mukherjee resigned along with K.C. Neogy from the Cabinet on 8 April 1950 over a disagreement about the 1950 Delhi Pact with Pakistani Prime Minister Liaquat Ali Khan. Mukherjee was firmly against their joint pact to establish minority commissions and guarantee minority rights in both countries as he thought it left Hindus in East Bengal to the mercy of Pakistan. While addressing a rally in Calcutta on 21 May, he stated that an exchange of population and property at governmental level on regional basis between East Bengal and the states of Tripura, Assam, West Bengal and Bihar was the only option in the current situation.

After consultation with M. S. Golwalkar of the Rashtriya Swayamsevak Sangh (RSS), Mukherjee founded the Bharatiya Jana Sangh on 21 October 1951 in Delhi, becoming its first President. In the 1952 elections, the Bharatiya Jana Sangh (BJS) won three seats in the Parliament of India, including Mukherjee's. He had formed the National Democratic Party within the Parliament. It consisted of 32 members of the Lok Sabha and 10 members of the Rajya Sabha; however, it was not recognised by the speaker as an opposition party. The BJS was created with the objective of nation-building and "nationalising" all non-Hindus by "inculcating Bharatiya Culture" in them. The party was ideologically close to the RSS and widely considered the proponent of Hindu nationalism.

Mukherjee was strongly opposed to Article 370, seeing it as a threat to national unity. He fought against it inside and outside the parliament with one of the goals of Bharatiya Jana Sangh being its abrogation. He raised his voice strongly against the provision in his Lok Sabha speech on 26 June 1952. He termed the arrangements under the article as Balkanization of India and the three-nation theory of Sheikh Abdullah. The state was granted its own flag along with a prime minister whose permission was required for anyone to enter the state. In opposition to this, Mukherjee once said "Ek desh mein do Vidhan, do Pradhan aur Do Nishan nahi chalenge" (A single country can't have two constitutions, two prime ministers, and two national emblems). Bharatiya Jana Sangh along with Hindu Mahasabha and Jammu Praja Parishad launched a massive Satyagraha to get the provisions removed. In his letter to Nehru dated 3 February 1953, he wrote that the issue of accession of Jammu and Kashmir to India should not be allowed to hang fire.

Mukherjee was arrested upon entering Kashmir on 11 May 1953. He and two of his arrested companions were first taken to Central Jail of Srinagar. Later they were transferred to a cottage outside the city. Mukherjee's condition started deteriorating and he started feeling pain in the back and high temperature on the night between 19 and 20 June. He was diagnosed with dry pleurisy from which he had also suffered in 1937 and 1944. The Doctor Ali Mohammad prescribed him a streptomycin injection and powders, however Mukherjee informed him that his family physician had told him that streptomycin did not suit his system. The Doctor however told him that new information about the drug had come to light and assured him that he would be fine. On 22 June, he felt pain in the heart region, started perspiring and started feeling like he was fainting. He was later shifted to a hospital and provisionally diagnosed with a heart attack. He died a day later under mysterious circumstances. The state government declared that he had died on 23 June at 3:40 a.m. due to a heart attack.

Shyama Prasad Mukherji College of University of Delhi was established in 1969 in his memory. On 7 August 1998, the Ahmedabad Municipal Corporation named a bridge after Mukherjee. Delhi has a major road named after Mukherjee called Shyama Prasad Mukherjee Marg. Kolkata, too, has a major road called Shyama Prasad Mukherjee Road. In 2001, the main research funding institute of the Government of India, CSIR, instituted a new fellowship named after him.

S.C. Das claims that Mukherjee was murdered. Atal Bihari Vajpayee claimed in 2004 that the arrest of Mukherjee in Jammu and Kashmir was a "Nehru conspiracy".

On 22 April 2010, the Municipal Corporation of Delhi's (MCD) newly constructed Rs. 650-crore building, the tallest building in Delhi, was named the Doctor Syama Prasad Mukherjee Civic Centre. It was inaugurated by Home Minister P. Chidambaram. The building, which is estimated to cater to 20,000 visitors per day, will also house different wings and offices of the MCD. The MCD also built the Syama Prasad Swimming Pool Complex which hosted aquatic events during the 2010 Commonwealth Games held at New Delhi.

In 2012, a flyover at Mathikere in Bangalore City Limits was inaugurated and named the Dr Syamaprasad Mukherjee Flyover. The International Institute of Information Technology, Naya Raipur is named after him.

In 2014, a multipurpose indoor stadium built on the Goa University campus in Goa was named after Mukherjee. In 2015, the Government of India launched Shyama Prasad Mukherjee Rurban Mission to drive economic, social and infrastructure development in rural areas and create 300 rurban areas to stem increasing migration to urban areas. This scheme was operationalised in February 2016.

The government of India approved the Shyama Prasad Mukherji Rurban Mission (SPMRM) with an outlay of ₹51.42 billion (US$790 million) on 16 September 2015. The Mission was launched by the Prime Minister on 21 February 2016 at Kurubhata, Murmunda Rurban Cluster, Rajnandgaon, Chhattisgarh. In April 2017, Ranchi College was upgraded to Shyama Prasad Mukherjee University. In September 2017, Kolar, a town in Bhopal, Madhya Pradesh, was renamed as Shyama Prasad Mukherji Nagar by Shivraj Singh Chauhan.