Kapoor was born on 3 November 1906 into a Khatri Punjabi Hindu family of Samundri, Samundri Tehsil, Lyallpur District, Punjab. His father, Basheshwarnath Kapoor, served as a police officer in the Indian Imperial Police in the city of Peshawar. He studied initially at Khalsa college Lyallpur, now known as Government Municipal Degree College, Faisalabad, and later at Edwardes College Peshawar. while his grandfather, Keshavmal Kapoor, was a Tehsildar in Samundri. Surinder Kapoor, the famous Bollywood producer and father of actors and producers Anil, Boney, and Sanjay Kapoor, was a cousin of Prithviraj Kapoor.

The couple’s eldest child, Raj Kapoor, was born in December 1924. By the time Prithviraj moved to Mumbai in 1927, the couple were the parents of three children. In 1930, Ramsarni joined Prithviraj in Mumbai. The following year, while she was pregnant for the fourth time, two of their sons died in the space of one week. One of their children, Devinder (Devi), died of double-pneumonia while the other child, Ravinder (Bindi), died of poisoning in a freak incident when he swallowed rat-poison pills strewn in the garden.

Kapoor began his acting career in the theatres of Lyallpur and Peshawar. In 1928, he moved to Bombay with a loan from an aunt. There he joined the Imperial Films Company and started acting in minor roles in movies. In 1928, he made his acting debut as an extra in his first film, Be Dhari Talwar. He went on to earn a lead role in his third film, titled Cinema Girl, which released in 1929.

By 1944, Kapoor had the wherewithal and standing to found his own theatre group, Prithvi Theatres, whose première performance was Kalidasa’s Abhijñānaśākuntalam in 1942. His eldest son, Raj Kapoor, by 1946, had struck out on his own; the films he produced had been successful and this was also an enabling factor. Prithviraj invested in Prithvi Theatres, which staged memorable productions across India. The plays were highly influential and inspired young people to participate in the Indian independence movement and the Quit India Movement. In over 16 years of existence, the theatre staged some 2,662 performances. Prithviraj starred as the lead actor in every single show. One of his popular plays was called Pathan (1947), which was performed on stage nearly 600 times in Mumbai. It opened on 13 April 1947, and is a story of a Muslim and his Hindu friend.

By the late 1950s, it was clear that the era of the travelling theatre had been irreversibly supplanted by the cinema and it was no longer financially feasible for a troupe of up to 80 people to travel the country for four to six months at a time along with their props and equipment and living in hotels and campsites. The financial returns, through ticket sales and the rapidly diminishing largesse of patrons from the erstwhile princely class of India, was not enough to support such an effort. Many of the fine actors and technicians that Prithvi Theatres nurtured had found their way to the movies. Indeed, this was the case with all of Prithviraj’s own sons. As Kapoor progressed into his 50s, he gradually ceased theatre activities and accepted occasional offers from film-makers, including his own sons. He appeared with his son Raj in the 1951 film Awara as a stern judge who had thrown his own wife out of his house. Later, under his son, Shashi Kapoor, and daughter in law Jennifer Kendal, Prithvi Theatre merged with the Indian Shakespeare theatre company, “Shakespeareana”, and the company got a permanent home, with the inauguration of the Prithvi Theatre in Mumbai on 5 November 1978.

In 1954, he was awarded the Sangeet Natak Akademi Fellowship, and in 1969, the Padma Bhushan by the Government of India. He remained Nominated Rajya Sabha Member for eight years.

After his retirement, Prithviraj settled in a cottage called Prithvi Jhonpra near Juhu beach. The property was on lease, which was bought by Shashi Kapoor, and later converted into a small, experimental theatre, the Prithvi Theatre. Both Prithviraj and Ramsarni had cancer and died about a fortnight apart. Prithviraj died on 29 May 1972.

In 1996, the Golden Jubilee year of the founding of Prithvi Theatre, India Post, issued a special two Rupee commemorative postage stamp. It featured the logo of the theatre, the dates 1945–1995, and an image of Kapoor. The first day cover, (stamped 15-1-95), showed an illustration of a performance of a travelling theatre in progress, on a stage that seems fit for a travelling theatre, as Prithvi theatre was for sixteen years, till 1960. On the occasion of 100 years of the Indian cinema, another postage stamp, bearing his likeness, was released by India Post on 3 May 2013.