Shah did his schooling at St. Anselm’s Ajmer and St Joseph’s College, Nainital. He graduated in arts from Aligarh Muslim University in 1971 and attended National School of Drama in Delhi.

In 1977, Shah, Tom Alter and Benjamin Gilani formed a theatre group called Motley Productions. Their first play was Samuel Beckett’s Waiting for Godot, which was staged at the Prithvi Theatre on 29 July 1979.

Shah became active in mainstream Bollywood cinema with the 1980 film Hum Paanch. In 1982, he acted in the film Dil Aakhir Dil Hai directed by Ismail Shroff, opposite Rakhee. One of his most important films, Masoom, was released in 1983 and was shot at St Joseph’s College, Nainital. His next major success in mainstream films was the 1986 multi-star film Karma where he acted alongside veteran Dilip Kumar. Starring roles for films such as Ijaazat (1987), Jalwa (1988) and Hero Hiralal (1989) followed. In 1988 he played opposite his wife Ratna Pathak as Inspector Ghote, the fictional detective of H. R. F. Keating’s novels in the Merchant Ivory English language film The Perfect Murder. He acted with Aditya Pancholi in films like Maalamaal (1988) and Game (1993).

In the 1970s, Shah met and fell in love with Ratna Pathak, the daughter of Dina Pathak, a well-respected character actress. Ratna’s sister, the actress Supriya Pathak, is married to the actor Pankaj Kapoor, who is the father of Shahid Kapoor by his first marriage. During the 70s and 80s, Naseeruddin Shah and Ratna Pathak co-starred in several films including Mirch Masala and The Perfect Murder. They were in a live-in relationship for many years, while Shah put together the mehr required to divorce Manara. Shah and Pathak were finally married in 1982. By his second marriage, Shah has two sons, Imaad and Vivaan, both of whom are aspiring actors. The couple lives in Mumbai with Heeba, Imaad and Vivaan.

In 1988, he acted in the eponymous television series based on the life and times of Mirza Ghalib, directed by Gulzar and telecast on DD National.

In 1989, he acted as the Maratha King Shivaji in another eponymous television series Bharat Ek Khoj based on Jawaharlal Nehru’s book The Discovery of India.

He has acted in several multi-star Bollywood films as well, such as Ghulami (1985), Tridev (1989) and Vishwatma (1992). In 1994, he acted as the villain in Mohra, his 100th film as an actor. He forayed into Malayalam cinema the same year, through T. V. Chandran’s drama Ponthan Mada. The film portrayed the irrational bonding of a feudal serf (played by Mammootty) and a colonial landlord (played by Shah). He strongly believed that the distinction between art and commercial films had largely reduced, especially with the directors of the former also making commercial films. In 2000, Shah played Mahatma Gandhi in Kamal Hassan’s Hey Ram which focused on the assassination of Gandhi from the assailant’s point of view.

Shah played Mohit, the drunken coach to a deaf and mute boy in Iqbal, which was written by Vipul K Rawal with Shah in mind. Shah was noted for his roles in the 1999 Aamir Khan-starrer Sarfarosh, where he played Gulfam Hassan – a ghazal singer-cum-terrorist mastermind — and in Neeraj Pandey’s A Wednesday (2008).

In 1999, he acted as a special agent in the TV series Tarkash on Zee TV. He played a retired agent haunted by nightmares who is re-inducted as he apparently knows something about a dreaded terrorist somehow connected with his past. He played the villain with the dual identity of a ghazal singer and a Pakistani spy who supports terrorism in India in Sarfarosh (1999).He was the first of several celebrity actors, who played narrator in the popular audiobook series for kids Karadi Tales. He was the narrator in the film Paheli — the Indian entry to the 2006 Academy Awards.

Shah has also starred in international projects, such as Monsoon Wedding in 2001 and a Hollywood adaptation of The League of Extraordinary Gentlemen in 2003 (co-starring Sean Connery), where he played Captain Nemo. His portrayal of Nemo was very close to the design of the graphic novel, although his Nemo was far less manic. He worked in Vishal Bhardwaj’s Indian adaptation of Shakespeare’s Macbeth, titled Maqbool, in 2003, and Rajiv Rai’s Asambhav opposite Arjun Rampal and Priyanka Chopra in 2004. He then went on to work in The Great New Wonderful (2005). In 2011, Shah was seen in The Dirty Picture. He acted in Anup Kurian’s The Blueberry Hunt, playing a recluse growing marijuana in his forest retreat, and in Waiting, starring opposite Kalki Koechlin, both of which were released in 2016.

His directorial debut in movies, Yun Hota To Kya Hota, was released in 2006. It stars several established actors such as Konkona Sen Sharma, Paresh Rawal, Irrfan Khan, then-newcomer Ayesha Takia, his son Imaad Shah and his old friend Ravi Baswani.

Naseeruddin has been frequently involved in controversy with his criticism of senior actors like Dilip Kumar, Rajesh Khanna, fellow actors like Anupam Kher, juniors like Shahrukh Khan, Salman Khan, cricketer Virat Kohli and politician and Prime minister Narendra Modi. Shah once said that people watching movies of Shahrukh and Salman should not watch his movies. In July 2016 Shah blamed late Rajesh Khanna for mediocrity in movies with his poor acting during the 1970s. He also stated that the veteran actor was not an alert person whom he had met. However, later after criticism from several people in the Bollywood fraternity including Rajesh Khanna’s daughter Twinkle, Naseeruddin apologized about his views. On December 18, 2018, he sparked a controversy by calling Virat Kohli as the worst behaved cricketer in the world. Shah was targeted by right wing media after he reacted to an incident of communal violence in December 2018. He stated that he felt unsafe in current day India and was worried about the safety of his children if they were caught in a mob violence situation. In January 2020, Shah was targeted by right wing media after criticising his co-actor colleague Anupam Kher for his views supporting the Indian government’s Citizenship Amendment Act, calling him a clown and sycophant.

In 2017, Shah returned to film, starring in Shakespearean adaption The Hungry, screened under special presentations at the Toronto International Film Festival 2017.