Tweed was born April 3, 1823, at 1 Cherry Street, on the Lower East Side of Manhattan. Son of a third-generation Scots-Irish chair-maker, Tweed grew up on Cherry Street. Tweed's religious affiliation was not widely known in his lifetime, but at the time of his funeral the New York Times, quoting a family friend, reported that his parents had been Quakers and "members of the old Rose Street Meeting house". At the age of 11, he left school to learn his father's trade, and then became an apprentice to a saddler. He also studied to be a bookkeeper and worked as a brushmaker for a company he had invested in, before eventually joining in the family Business in 1852. On September 29, 1844, he married Mary Jane C. Skaden and lived with her family on Madison Street for two years.

Tweed became a member of the Odd Fellows and the Masons, and joined a volunteer fire company, Engine No. 12. In 1848, at the invitation of state assemblyman John J. Reilly, he and some friends organized the Americus Fire Company No. 6, also known as the "Big Six", as a volunteer fire company, which took as its symbol a snarling red Bengal tiger, a symbol which remained associated with Tweed and Tammany Hall for many years. At the time, volunteer fire companies competed vigorously with each other; some were connected with street gangs and had strong ethnic ties to various immigrant communities. The competition could be so fierce that buildings would sometimes burn down while the fire companies fought each other. Tweed became known for his ax-wielding violence, and was soon elected the Big Six foreman. Pressure from Alfred Carlson, the chief Engineer, got him thrown out of the crew, but fire companies were also recruiting grounds for political parties at the time, and Tweed's exploits came to the attention of the Democratic politicians who ran the Seventh Ward, who put him up for Alderman in 1850, when Tweed was 26. He lost that election to the Whig candidate Morgan Morgans, but ran again the next year and won, garnering his first political position.

Tweed was elected to the United States House of Representatives in 1852, but his two-year term was undistinguished. In an attempt by Republican reformers in Albany, the state capital, to control the Democratic-dominated New York City government, the power of the New York County Board of Supervisors was beefed up. The board had 12 members, six appointed by the mayor and six elected, and in 1858 Tweed was appointed to the board, which became his first vehicle for large-scale graft; Tweed and other supervisors forced vendors to pay a 15% overcharge to their "ring" in order to do Business with the city. By 1853, Tweed was running the seventh ward for Tammany.

For Example, the construction cost of the New York County Courthouse, begun in 1861, grew to nearly $13 million—about $178 million in today's dollars, and nearly twice the cost of the Alaska Purchase in 1867. "A carpenter was paid $360,751 (roughly $4.9 million today) for one month's labor in a building with very little woodwork ... a plasterer got $133,187 ($1.82 million) for two days' work".

Tweed was a member of the New York State Senate (4th D.) from 1868 to 1873, sitting in the 91st, 92nd, 93rd and 94th New York State Legislatures, but not taking his seat in the 95th and 96th New York State Legislatures. In the Senate he helped financiers Jay Gould and Big Jim Fisk to take control of the Erie Railroad from Cornelius Vanderbilt by arranging for legislation that legitimized fake Erie stock certificates that Gould and Fisk had issued. In return, Tweed received a large block of stock and was made a Director of the company.

Tweed recognized that the support of his constituency was necessary for him to remain in power, and as a consequence he used the machinery of the city's government to provide numerous social services, including building more orphanages, almshouses and public baths. Tweed also fought for the New York State Legislature to donate to private charities of all religious denominations, and subsidize Catholic schools and hospitals. From 1869 to 1871, under Tweed's influence, the state of New York spent more on charities than for the entire time period from 1852 to 1868 combined. Tweed also pushed through funding for a teachers college and prohibition of corporal punishment in schools, as well as salary increases for school teachers.

Tweed himself wanted no particular recognition of his achievements, such as they were. When it was proposed, in March 1871, when he was at the height of his power, that a statue be erected in his honor, he declared: "Statues are not erected to living men ... I claim to be a live man, and hope (Divine Providence permitting) to survive in all my vigor, politically and physically, some years to come." One of Tweed's unwanted legacies is that he has become "the archetype of the bloated, rapacious, corrupt city boss".

Tweed's first trial, in January 1873, ended when the jury was unable to agree on a verdict. His retrial in November resulted in convictions on 204 of 220 counts, a fine of $12,750 (the equivalent of $260,000 today) and a prison sentence of 12 years; a higher court, however, reduced Tweed's sentence to one year. After his release from prison, New York State filed a civil suit against Tweed, attempting to recover $6 million in embezzled funds. Unable to put up the $3 million bail, Tweed was locked up in the Ludlow Street Jail, although he was allowed home visits. On one of these, Tweed escaped and fled to Spain, where he worked as a Common seaman on a Spanish ship. The U.S. government discovered his whereabouts and arranged for his arrest once he reached the Spanish border; he was recognized from Nast's political cartoons. He was turned over to an American warship, the USS Franklin, which delivered him to authorities in New York City on November 23, 1876, and he was returned to prison.

Tweed was convicted for stealing an amount estimated by an aldermen's committee in 1877 at between $25 million and $45 million from New York City taxpayers through political corruption, although later estimates ranged as high as $200 million. Unable to make bail, he escaped from jail once, but was returned to custody. He died in the Ludlow Street Jail.

Desperate and broken, Tweed now agreed to testify about the inner workings of his corrupt Ring to a special committee set up by the Board of Aldermen, in return for his release, but after he did so, Tilden, now governor of New York, refused to abide by the agreement, and Tweed remained incarcerated. He died in the Ludlow Street Jail on April 12, 1878, from severe pneumonia, and was buried in the Brooklyn Green-Wood Cemetery. Mayor Smith Ely would not allow the flag at City Hall to be flown at half staff.

In 1945 Boss Tweed was portrayed by Noah Beery, Sr. in the Broadway production of Up In Central Park, a musical comedy with music by Sigmund Romberg. The role was played by Malcolm Lee Beggs for a revival in 1947. In the 1948 film version, Tweed is played by Vincent Price.

On the 1963–1964 CBS TV series The Great Adventure, which presented one-hour dramatizations of the lives of historical figures, Edward Andrews portrayed Tweed in the episode "The Man Who Stole New York City", about the campaign by The New York Times to bring down Tweed. The episode aired on December 13, 1963.

In John Varley's 1977 science-fiction novel, The Ophiuchi Hotline, a crooked Politician in a 27th-century human settlement on the Moon assumes the name "Boss Tweed" in emulation of the 19th-century Politician, and names his lunar headquarters "Tammany Hall".

Tweed was played by Philip Bosco in the 1986 TV movie Liberty. According to a review of the film in The New York Times, it was Tweed who made the suggestion to call the Statue of Liberty by that name, instead of its formal name Liberty Enlightening the World, in order to read better in newspaper headlines.

Andrew O'Hehir of The New York Times notes that Forever, a 2003 novel by Pete Hamill, and Gangs of New York, a 2002 film, both "offer a significant supporting role to the legendary Manhattan political godfather Boss Tweed", among other thematic similarities. In a review of the latter work, Chuck Rudolph praised Jim Broadbent's portrayal of Tweed as "giving the role a masterfully heartless composure".

During Tweed's regime, the main Business thoroughfare Broadway was widened between 34th Street and 59th Street, land was secured for the Metropolitan Museum of Art, and the Upper East Side and Upper West Side were developed and provided the necessary infrastructure – all to the benefit of the purses of the Tweed Ring, but also, ultimately, to the benefit of the people of the city.

Thus, the city's elite met at Cooper Union in September to discuss political reform: but for the first time, the conversation included not only the usual reformers, but also Democratic bigwigs such as Samuel J. Tilden, who had been thrust aside by Tammany. The consensus was that the "wisest and best citizens" should take over the governance of the city and attempt to restore investor confidence. The result was the formation of the Executive Committee of Citizens and Taxpayers for Financial Reform of the City (also known as "the Committee of Seventy"), which attacked Tammany by cutting off the city's funding. Property owners refused to pay their municipal taxes, and a judge—Tweed's old friend George Barnard, no less—enjoined the city Comptroller from issuing bonds or spending money. Unpaid workers turned against Tweed, marching to City Hall demanding to be paid. Tweed doled out some funds from his own purse—$50,000—but it was not sufficient to end the crisis, and Tammany began to lose its essential base.