Born in Stirling, Ferguson played for the juvenile side Carse Thistle. Dundee United signed him as a schoolboy and he went on to win the BP Youth Cup in 1990. Later that year Ferguson made his professional debut for them against Rangers at Ibrox Stadium on 10 November 1990. His first goal was an extra time winner against East Fife in the Scottish Cup on 29 January 1991.

Ferguson made his first full international appearance for Scotland in May 1992. He hit the crossbar with an overhead kick during a friendly match with Germany. He made seven Scotland appearances in all, with his last appearance coming in February 1997. He refused international selection after 1997, partly in protest against his treatment by the SFA after his conviction for assault on John McStay and in particular the imposition of a 12-game ban on top of his 3-month prison sentence.

Ferguson moved to Rangers in 1993 for a transfer fee of £4 million, which set a new British record. During a match with Raith Rovers in April 1994, Ferguson headbutted the visitors’ John McStay in the south-west corner of the Ibrox pitch. Referee Kenny Clark did not see the incident, but Ferguson was subsequently charged and found guilty of assault. As it was his third conviction for assault, in addition to two other convictions, he received a three-month prison sentence in October 1995. The SFA banned Ferguson for 12 matches before the court case was heard.

In October 1994, Everton were struggling under the management of Mike Walker and looking for options to reinvigorate their faltering season. The solution enacted was to take two Rangers players on a loan deal, Ian Durrant for one month and Ferguson for three. Ferguson’s move to Everton was later made permanent by Walker’s successor Joe Royle, and Ferguson played a key role in saving Everton from relegation, and also helping them win the 1994–95 FA Cup. The subsequent 1995–96 season was less successful for Ferguson. A persistent hernia problem caused him to be unavailable for large amounts of time, as did his prison sentence during the first half of the season.

Ferguson has had four convictions for assault – two arising from taxi rank scuffles, one an altercation with a fisherman in an Anstruther pub, and one for his on-field headbutt on Raith Rovers defender John McStay in 1994 while playing for Rangers, which resulted in a rare conviction for an on-the-field incident.

Initially Ferguson was a voluntary worker at the academy, working for Alan Irvine, a former mentor of his from his playing career. Although Ferguson remains disappointed with the Scottish FA for what he sees as a lack of support following his sentencing in 1995, he enrolled on a nine-day Scottish FA organised coaching course in Largs, Scotland to earn a UEFA B-Licence. In May 2012, he returned to Largs to achieve a UEFA A licence and in January 2013 he enrolled on a further course and is working towards a UEFA Pro Licence. In February 2014 Ferguson was promoted to the first team coaching staff at Everton. His first game in the role was a home game against West Ham United on 1 March 2014.

On 28 December 1997, Ferguson scored a hat-trick against Bolton Wanderers in a 3–2 victory, the first time that a trio of headers had been scored in the Premier League. Everton finished the season surviving relegation only on goal difference.

Ferguson was sold to Newcastle United for a fee of £8 million in November 1998. The deal was done to sell Ferguson by the Everton chairman, Peter Johnson, without the knowledge of Walter Smith. Ferguson wrote a two-page goodbye letter in the club magazine to fans, stating his sadness at leaving and that he would never forget them.

After bringing Ferguson to Newcastle, manager Ruud Gullit was rewarded when Ferguson scored twice on his debut against Wimbledon in the Premier League. The final result was a 3–1 victory to Newcastle. Ferguson subsequently suffered an injury and played only seven times in the 1998–99 season. This included a substitute appearance in the 1999 FA Cup Final, which Newcastle lost to Manchester United. His extended absence lasted from late December until April. Likewise, Ferguson was injured in the first half of the 1999–2000 season, and was unable to play in the last seven league matches of the season. His final appearance came in the FA Cup semi-final defeat to eventual winners Chelsea.

On 17 August 2000, Ferguson moved back to Everton for a fee of £3.75 million. The transfer had previously been close to collapse as he sought a £1 million “loyalty payment” from Newcastle for not personally asking for a transfer; he had made the same amount of money from Everton when he transferred in 1998 on the same basis. Two days after signing, he played his first game in a 2–0 loss at Leeds United, coming on for Stephen Hughes after 56 minutes. On 23 August, on his return to Goodison Park, he scored twice in a 3–0 win over Charlton Athletic after coming on for Mark Hughes in the 67th minute.

In 2001, two burglars broke into Ferguson’s home in Rufford, Lancashire. Ferguson confronted them and was able to detain one of them, who subsequently spent three days in hospital. The second man managed to flee but was eventually caught. Both men were sentenced to 15 months’ imprisonment for their actions.

On 1 April 2002, Ferguson was sent off after 20 minutes for elbowing Bolton Wanderers’ Kostas Konstantinidis in an off-the-ball incident in a 3–1 win for a struggling Everton side.

In August 2003, Jamie Jackson of The Guardian called Ferguson “arguably the biggest waste of money of all”, citing his high transfer fees and wages compared to his injury record and age. By that point, he had scored 12 times in 41 games in three years at Everton, while earning over £5 million in salary. His 192 minutes of play in 2002–03 as a goalless substitute cost the club £9,000 per minute.

In 2003, Ferguson caught another burglar at his home in Formby, Merseyside; the burglar attacked Ferguson, who retaliated. The burglar was hospitalised and later alleged that Ferguson had assaulted him, but this was dismissed by police.

Ferguson was accused of racial abuse by Fulham’s Luís Boa Morte after an FA Cup fourth round match in January 2004. The accusation was dismissed by the Football Association, who found insufficient evidence. On 28 December that year, Ferguson came on for Marcus Bent in the 74th minute of Everton’s 2–0 loss at Charlton, and within ten minutes he was sent off for an elbow on Hermann Hreiðarsson.

During the 2005–06 season, Ferguson was sent off against Wigan Athletic for violent conduct. His confrontation with Paul Scharner and subsequent fracas with Pascal Chimbonda resulted in a seven-match ban and saw his Premier League red–card count reach eight, equalling Patrick Vieira’s record. On 7 May 2006, against West Bromwich Albion at Goodison Park, Ferguson was named captain in the game that marked the end of his Everton career. His 90th-minute penalty kick was saved by Tomasz Kuszczak, but he subsequently scored from the rebound, netting his final goal for the club. Ferguson was not given a new Everton deal and retired, moving his family to Mallorca and spurning advances from a number of clubs.

Ferguson played for Everton in a testimonial match in his honour on 2 August 2015 against Villarreal.

Following the dismissal of manager Marco Silva on 5 December 2019, Ferguson was named as caretaker manager of Everton. In his first game in charge two days later, Everton beat Chelsea 3–1 to lift themselves out of the relegation zone. Following the appointment of Carlo Ancelotti as the new manager later that month, Ferguson was made assistant manager.