Having trained with Rangers since 1991, Ferguson signed a professional contract upon finishing his education at Brannock High School in 1994. Aside from his brother, Ferguson’s idol was Ian Durrant, who was still an important player when he joined the club.

Ferguson was promoted to the first-team squad for the 1996–97 season. He made his debut on the last day of that season against Hearts on 10 May 1997. He made a number of sporadic appearances the following season under manager Walter Smith’s policy of easing him into the first team.

Ferguson became a regular fixture in the first team during the 1998–99 season under new manager Dick Advocaat (displacing fellow youth graduate Charlie Miller). The Dutchman soon secured Ferguson on a long-term contract as he became an important member of the squad. He scored his first career goal in a League Cup match against Alloa Athletic on 18 August 1998, and played against his brother on three occasions during that season when Rangers faced Dunfermline Athletic, with a 20-year-old Ferguson scoring his first league goal in the match at East End Park. His brother, then 31 years old, made his last appearance at Ibrox in the reverse fixture. Injury prevented him from being involved in the 1998–99 season run-in as the club achieved the treble; Ferguson watched the 1999 Scottish Cup Final from the stands as Rangers won by a single goal, scored by Rod Wallace three minutes into the second half.

Ferguson made twelve appearances for Scotland’s under-21 team. He made his full international debut at the age of 20 against Lithuania on 5 September 1998. However, an injury-plagued season prevented him from picking up more caps. Indeed, Ferguson did not return to the Scotland set up until a year later, starting in a 2–1 win against Bosnia-Herzegovina on 4 September 1999.

Ferguson was so influential the following season that he was given an extended six-year deal at Rangers in October 1999. He was named the Scottish Football Writers’ Association Footballer of the Year for 1999–2000, a season in which Rangers retained the Premier League and Scottish Cup, beating Aberdeen in the final.

Ferguson received minor facial injuries after engaging in a drunken hotel brawl following a 6–2 defeat to Celtic in August 2000. After being sent off in the match, he had made obscene gestures to the crowd and then went drinking in Bothwell in his club tracksuit. When the club crashed out of the UEFA Champions League group stage at the hands of AS Monaco, largely because of a mistake by captain Lorenzo Amoruso, the Italian was stripped of the captaincy and it instead went to the 22-year-old Ferguson. An incident in which two bags of ice were thrown at the Celtic dug-out during a 2–0 defeat at Ibrox in September 2001 was attributed to Ferguson, who was criticised for his petulance and immaturity. Celtic manager Martin O’Neill played down the incident, saying he thought the ice had been thrown by his club’s doctor. The young Ferguson would go on to successfully guide his team to a League Cup and Scottish Cup later that season under manager Alex McLeish, who had replaced Advocaat in December 2001. In the latter final, another Old Firm clash, Ferguson tied the score at 2–2 with a free kick (Peter Lovenkrands scored the winning goal).

On 29 August 2003, Ferguson joined Premier League club Blackburn Rovers for a fee of £7.5 million. With Everton also chasing Ferguson, Rangers had initially denied that he was leaving. He made his Blackburn debut in a Premier League match against Liverpool on 19 September at Ewood Park, and scored his first goal against the same team, also at Ewood Park, during a League Cup match on 29 October.

Graeme Souness made Ferguson captain of Blackburn in July 2004 and he seemed to be adapting well to Premiership football, despite the team still struggling and a managerial change, which saw Mark Hughes replacing Souness. However, after 16 months at the club, including a lengthy period out through injury after fracturing his kneecap in a Premiership match against Newcastle United, during the January 2005 transfer window, Ferguson submitted a written transfer request, admitting that the draw of playing in the Premiership and a Lancashire derby could not compare with an Old Firm match, nor could the team’s desire to win be matched.

Ferguson was inducted into the Rangers F.C. Hall of Fame in 2004 at the age of 26.

He was appointed captain of the national side in 2004 by then-manager Berti Vogts, following the retirement of Paul Lambert. Ferguson captained Scotland a total of 28 times. He led the side to a single-goal victory over former World Champions France 1–0 at the Parc des Princes in Paris on 12 September 2007. This completed a double-header of single-goal victories against the French during the Euro 2008 qualifying campaign.

After much discussion between the clubs, a fee of £4.5 million was agreed and Ferguson rejoined Rangers just before the close of the transfer window. Ferguson later said that the fee Rangers paid was actually £100,000 plus the fees Blackburn owed from the original transfer. Ferguson’s second debut for Rangers came in a League Cup semi-final victory over Dundee United. He was a 69th-minute substitute for Alex Rae during the 7–1 win. His first goal after his return was the opening goal in a 1–1 draw against Inverness CT on 5 March 2005. Ferguson played in the 2005 Scottish League Cup Final and was part of the Rangers team that won the league title on the last day of the season.

After an incident in the dressing room at Caledonian Stadium, Inverness, on 27 December 2006, it was announced on BBC Radio Scotland’s New Year’s Day broadcast of Sportsound that Ferguson had been stripped of the Rangers captaincy after a meeting with then manager Paul Le Guen. He was also dropped from the squad for the next match. Later Le Guen claimed Ferguson was undermining him. “I’ll go on record as saying I never had one bust-up with him, never had one argument with him. I don’t know where all this comes from,” explained Ferguson eleven years later. “No disrespect to Inverness Caley — they had good players, no doubt — but we we’re Rangers here. We were dropping points against teams that we should be beating. So, I let it out a wee bit. There was no arguments, nothing in the dressing room. After I had said that, we flew back down to Glasgow. We were playing Motherwell next, I think, and I came in the day of, or the day before, the Motherwell game. I came in, put my bag down, Yves Colleu, who was the assistant manager, comes in and says, ‘Paul wants to speak to you’. I went into his office and went to sit down, and [Le Guen] said, ‘Don’t sit down. That’s you finished; you won’t play with Rangers again.'”

In January 2008, he scored a controversial goal in Rangers’ 2007-08 Scottish League Cup semi-final win against Hearts. He later admitted to handling the ball in the buildup to the goal but that the infringement was unintentional. Rangers went on to win both the League Cup final and the Scottish Cup final.

On 14 May 2008, Ferguson made his 400th appearance for Rangers in the UEFA Cup Final against Zenit Saint Petersburg at the City of Manchester Stadium; he captained the side to a 2–0 defeat.

In April 2009, after an extended hotel drinking session with Rangers teammate Allan McGregor after Scotland’s defeat to the Netherlands, followed by both players making inappropriate gestures while on the bench during the next match against Iceland, Ferguson was stripped of the captain’s armband for both club and country. He recovered from this setback to help Rangers win the 2009 Scottish Cup Final against Falkirk (his last match for the club, having not started since the Scotland incident). Rangers also won the SPL title but missed out on another treble with a defeat in the 2009 Scottish League Cup Final.

On 17 July 2009, Ferguson completed a move to English Premier League newcomers Birmingham City on a three-year contract for an undisclosed fee, reported as “in the region of £1.2m”. Joining up with boss Alex McLeish once again, the former Rangers manager said that Ferguson has “unfinished business in England” and that he believed the former Scottish international to be “very capable of competing with the best players in the Premier League.” He made his debut in the opening game of the season, against Manchester United on 15 August 2009, and his first goal for the club came as the only goal of the FA Cup third round replay against Nottingham Forest in January 2010. Ferguson won the Birmingham City players’ Player of the Year award for 2009–10.

Ferguson received criticism for being a disruptive influence on the team despite captaining his country for years. On 3 April 2009, he was banned from ever representing Scotland again after serious breaches of squad discipline, and the captain’s armband was given to Darren Fletcher. Additionally, Ferguson’s club, Rangers, stripped him of the captain’s role and suspended him for two weeks without pay.

Following the dismissal of George Burley as manager of Scotland, SFA chief executive Gordon Smith confirmed that the incoming manager would be free to select Ferguson should he so wish. On 6 July 2010, Scotland coach Craig Levein confirmed that Ferguson will not play for Scotland again. Levein had hoped he would return, but Ferguson informed him that he wanted to focus on club football instead.

Ferguson helped Birmingham beat Arsenal in the 2011 League Cup Final at Wembley, despite playing the last hour of the game with a broken rib. During both of his two seasons with Birmingham, Ferguson made over two thousand passes without recording an assist. In season 2009–10 Ferguson had the highest number of completed passes of any player in the Barclays Premier League, according to Opta statistics.

With Birmingham needing to reduce their wage bill following their relegation from the Premier League, Ferguson joined Championship club Blackpool on 22 July 2011 for an undisclosed fee, reported to be around £750,000. This enabled him to move closer to his family in Scotland, and he signed a two-year deal, with the option of staying on for a further year. He was given the captain’s armband (taking over from Charlie Adam, who had departed for Liverpool) for the club’s opening League fixture at Hull City on 5 August.

In October 2013, Ferguson had a sixth and final operation on his ankle, which kept him out until 3 December. “After the surgery, the surgeon said, “Right, it’s over. Don’t try [playing] again.”

On 21 January 2014, Ferguson was installed as Blackpool’s caretaker manager in the wake of Ince’s sacking. “I didn’t want to take it, but nobody else would take the job,” Ferguson explained in 2020. “And it was a chance to keep the club up.” He initially stated that he would not be playing while in the managerial role, but on 12 April, at Leeds, he named himself in the starting line-up in an attempt to stave off the threat of relegation. Although Blackpool won only three of their twenty games with Ferguson in charge, they avoided relegation by two points. Ferguson left Blackpool at the end of the 2013–14 season.

In June 2014, Ferguson was appointed player-manager of Scottish League Two club Clyde. Clyde were drawn away to Rangers in the Challenge Cup after a 2–0 home win against Ayr United; Rangers won 8–1. On 27 September, Ferguson made his playing debut against Annan Athletic in a 1–1 draw at Broadwood, but came off early in the second half with an injury. Towards the end of the 2–0 defeat to Lowland League club Spartans in the second round of the Scottish Cup, Ferguson was sent to the stands after a verbal altercation with Clyde supporters. In April 2015, Ferguson said that he had retired as a player.

In July 2017 it was reported that Ferguson successfully applied for bankruptcy after running up debts of £1,425,633, whilst having only £3,000 worth of assets to help pay off his creditors. Ferguson exited bankruptcy in July 2018, having co-operated with an insolvency firm.

In October 2018, Ferguson had discussions with Lowland League club Kelty Hearts about becoming their new manager. He was offered and accepted the position later that month. Hearts finished third in the Lowland League in Ferguson’s first season in charge. They won the championship the following season, 2019–20, after it was curtailed due to the COVID-19 pandemic.