Dorsey was born and raised in St. Louis, Missouri, the son of Tim and Marcia (née Smith) Dorsey. He is of English, Irish, and Italian descent. His father worked for a company that developed mass spectrometers and his mother was a homemaker. He was raised Catholic, and his uncle is a Catholic priest in Cincinnati. He attended the Catholic Bishop DuBourg High School. In his younger days, Dorsey worked occasionally as a fashion model. By age fourteen, Dorsey had become interested in dispatch routing. Some of the open-source software he created in the area of dispatch logistics is still used by taxicab companies. Dorsey attended the University of Missouri–Rolla for two-plus years (1995–97) before transferring to New York University, but he dropped out in 1999, one semester short of graduating. He came up with the idea that he developed as Twitter while studying at NYU.

While working on dispatching as a programmer, Dorsey moved to California. In 2000, Dorsey started his company in Oakland to dispatch couriers, taxis, and emergency services from the Web. His other projects and ideas at this time included networks of medical devices and a “frictionless service market”. In July 2000, building on dispatching and inspired in part by LiveJournal and by AOL Instant Messenger, he had the idea for a Web-based realtime status/short message communication service.

When he first saw implementations of instant messaging, Dorsey wondered whether the software’s user status output could be shared easily among friends. He approached Odeo, which at the time happened to be interested in text messaging. Dorsey and Biz Stone decided that SMS text suited the status-message idea, and built a prototype of Twitter in about two weeks. The idea attracted many users at Odeo and investment from Evan Williams, a co-founder of that firm in 2005 who had left Google after selling Pyra Labs and Blogger.

On October 16, 2008, Williams took over as CEO, while Dorsey became chairman of the board. During his time as chairman, Dorsey joined several State Department delegations, including a trip to Iraq in April 2009, led by Jared Cohen. In November, when Iranians took to the streets in the Green Revolution, Twitter was scheduled to conduct maintenance of its site, which would entail temporarily shutting down Twitter’s servers. Dorsey responded to a request from Cohen to delay the maintenance so that it would not affect the revolution in Iran, because Iranians were using Twitter to communicate and coordinate. Since President Obama had announced that there would be no meddling in Iran, the move sparked controversy. In February 2010, Dorsey was part of another State Department delegation, this time to Russia. On March 28, 2011, he returned to Twitter as executive chairman after Dick Costolo replaced Williams as CEO. On June 10, 2015, Costolo announced his resignation as CEO, effective July 1, 2015. Dorsey assumed the post of interim CEO upon Costolo’s departure. He was named permanent CEO on October 5, 2015. On the day after the controversy about Twitter’s new algorithms for tweets, Dorsey said it was a hoax.

Dorsey, along with co-founder Jim McKelvey, developed a small business platform to accept debit and credit card payments on a mobile device called Square, released in May 2010. The small, square-shaped device attaches to iPhone, iPad, iPod Touch, or Android devices via the headphone jack, and as a mini card reader, allows a person to swipe their card, choose an amount to transfer to the recipient and then sign their name for confirmation. Square is also a system for sending paperless receipts via text message or email, and is available as a free app for iOS and Android OS. The company grew from 10 employees in December 2009 to over 100 by June 2011. Square’s office is on Market Street in San Francisco. In September 2012, Business Insider magazine valued Square Inc. at US$3.2 billion. Dorsey is CEO of Square, Inc. On October 14, 2015, Square filed for an IPO to be listed on the New York Stock Exchange. As of that date, Dorsey owned 24.4 percent of the company. In March 2020 the FDIC permitted Square to open a bank. It announced plans to launch Square Financial Services in 2021.

In 2012, Dorsey moved to the Sea Cliff neighborhood of San Francisco. He walks five miles to work each morning and calls it a “very clearing time”. He is a fan of Kendrick Lamar’s music and of French radio station FIP. In late 2017, Dorsey completed ten days of meditation known as Vipassanā taught by followers of S. N. Goenka. In November 2018, Dorsey went on a birthday Vipassana meditation trip to a Buddhist-majority Myanmar, where social media may have helped fuel a genocide of Muslims. Dorsey said he was “aware of the human rights atrocities and suffering in Myanmar. … I didn’t intend to diminish by not raising the issue, but could have acknowledged that I don’t know enough and need to learn more.” Dorsey has contributed financially to the campaigns of Democratic presidential candidates Tulsi Gabbard and Andrew Yang.

In 2013, talking to CNN, Dorsey expressed admiration for Michael Bloomberg and his reinvention through design and simple interfaces of what it means to be mayor. Dorsey thinks becoming mayor of New York City is an aspiration that would raise the bar for him. He served as a judge for New York City Mayor Michael Bloomberg’s NYC BigApps competition in 2011. Dorsey is an on-record donor to Democratic Party candidates.

Dorsey was announced as a new member of the board of directors of The Walt Disney Company on December 24, 2013. In January 2018, it was reported that Dorsey would not seek reelection at Disney’s March annual meeting, due to increased difficulty with conflicts of interest.

In May 2016, Dorsey announced that Twitter would not count photos and links in the 140-character limit to free up more space for text. This was an attempt to entice new users, since the number of tweets per day had dropped to about 300 million in January 2016 from about 500 million in September 2013 and its peak of 661 million in August 2014.

On November 22, 2016, Dorsey was briefly suspended from his own Twitter account with 3.9 million followers. After restoring the account, Dorsey tweeted that the suspension was due to an “internal mistake”.

In March 2016, Dorsey fully funded about 600 Missouri public school projects registered at DonorsChoose.

In February 2017, Dorsey and Executive Chairman Omid Kordestani matched a $530,000 donation to the American Civil Liberties Union (ACLU) raised by Twitter staffers. Their match brought the total donation to $1.59 million.

In March 2018, Dorsey announced that an improved version of the verification system would be coming to Twitter. The purpose of redesigning verification was to let people verify more facts about themselves, emphasizing proof of identity. The overhaul was not in place before the U.S midterm election of 2018 to help in verifying the identities of the candidates.

In September 2018, Dorsey testified before the Senate Intelligence Committee alongside Facebook COO Sheryl Sandberg about meddling in the 2016 presidential election. Following this testimony, Twitter shares fell 6 percent.

On August 30, 2019, Dorsey’s personal Twitter account was allegedly breached for nearly an hour by a group calling itself the Chuckling Squad, posting and retweeting numerous racist tweets.

On October 23, 2019, Twitter’s stock price fell by nearly 24 percent, from $38.83 to $30.75. The reason was an earnings miss off a third-quarter report, which Twitter blamed on ad targeting problems. Dorsey had been making a concerted effort to dampen the effect that Twitter had on political elections, which entailed banning all political ads. This was also seen as a large contributor to the drop. Dorsey announced that, as of November 22, 2019, Twitter would ban all political advertising. The policy applies globally to all marketing campaigns about political issues.

In October 2019, Dorsey donated $350,000 to #TeamTrees, a nonprofit started by YouTuber MrBeast that pledged to plant 20 million trees by the end of 2019.

On February 29, 2020, it was announced that activist hedge fund Elliott Management led by billionaire Paul Singer was looking to oust Dorsey and nominate four directors to Twitter’s board, including Elliott’s senior portfolio manager Jesse Cohn. Dorsey received support from entrepreneurs Elon Musk and Ethereum co-founder Vitalik Buterin, among others. The two parties reached an agreement days later, with Dorsey remaining CEO.

In October 2020, Dorsey was one of several tech firm CEOs subpoenaed by the US Senate Commerce Committee. Republican Roger Wicker, who chairs the committee, led the charge to force the CEOs of Twitter, Facebook and Google to testify about the legal immunity the tech platforms receive under Section 230 of the Communications Act of 1934.

In May 2020, Dorsey extended to Square employees the same offer he made to those at Twitter, the option to work from home permanently.

In 2020, Square began withholding for months up to 30 percent of the funds that merchants collected from customers using its Cash App.

On April 7, 2020, Dorsey announced that he will move about $1 billion of his equity in Square, Inc., just under a third of his total wealth, to Start Small, LLC, and to relief programs related to the coronavirus. He committed to funding COVID-19 relief, girls’ education and health, and universal basic income. Dorsey has donated $24 million to over 40 different grantees for relief efforts.

In August 2020, Dorsey donated $10 million to Boston University’s Center for Antiracist Research, founded by Ibram X. Kendi.