A myth-maker extraordinaire, mystery surrounds his origins. His most recent biographers have written that Stroheim was born in Vienna, Austria in 1885 as Erich Oswald Stroheim, the son of Benno Stroheim, a middle-class hat-maker, and Johanna Bondy, both of whom were practising Jews.

Stroheim himself claimed to be Count Erich Oswald Hans Carl Maria von Stroheim, the son of Austrian nobility like the characters he played in his films. However Jean Renoir writes in his memoirs: “Stroheim spoke hardly any German. He had to study his lines like a schoolboy learning a foreign language.”

Later in life, while living in Europe, in published remarks Stroheim claimed to have "forgotten" his native tongue. Whatever the truth, by 1914 he was working in Hollywood.

He began working in movies in bit parts and as a consultant on German culture and fashion. His first film was The Country Boy, in which he was uncredited, in 1915. His first credited role was Old Heidelberg.

He began working with D. W. Griffith, with uncredited roles in Birth of a Nation and Intolerance. But he began playing the sneering German in such films as Sylvia of the Secret Service and The Hun Within. In The Heart of Humanity, he threw a baby out a window.

Following the war, he turned to writing and directing, first directing his own script for Blind Husbands in 1919. As a director, Stroheim was known to be dictatorial and demanding, often antagonizing his actors; he was one of the first filmmakers to fulfill the stereotype of the Teutonic tyrant, often wearing a monocle and carrying a riding crop while directing.

In 1923, von Stroheim began work on his film Merry-Go-Round. He cast the American actor Norman Kerry to play his alter-ego 'Count Franz Maximilian Von Hohenegg' and newcomer Mary Philbin in the lead actress role, but studio executive Irving Thalberg fired von Stroheim during filming and had to be replaced by director Rupert Julian. Although controversial at the time, the film is now considered a classic.

Perhaps his most famous work as a director was Greed, a detailed filming of the novel McTeague by Frank Norris. Von Strohiem filmed and edited a staggering nine-hour version of the book, shot mostly on the actual locations depicted in the book, including San Francisco and Death Valley. After his attempts to edit it down to under three hours failed, MGM cut the film to a little over two hours, and in what is considered one of the greatest losses in cinema history, eventually destroyed the excess footage. The shortened release version was a box-office failure, and was angrily disowned by von Stroheim. The film was partially reconstructed in 1999, using the existing footage mixed with surviving still photographs, but Greed has passed into cinema lore as a lost masterpiece.

But his dictatorial manner and extreme attention to detail (including requiring that his actors wear period underwear in order to know how their characters would feel) caused him to go to war with the studios, and he received fewer directing opportunities. Other directorial efforts included The Devil's Passkey,Foolish Wives, The Merry-Go-Round, The Merry Widow, and The Wedding March.

His film Queen Kelly brought down the curtain on his own career as a director. After spending huge sums of money and due to bitter conflicts with star Gloria Swanson, he he was fired from the director's chair halfway through filming by producer and financier Joseph P. Kennedy. Afterwards he directed only two more films.

Instead, he returned to acting. He is perhaps best known for Jean Renoir's La Grande Illusion and Billy Wilder's Sunset Boulevard, co-starring with Swanson. He was nominated for the Academy Award for Best Supporting Actor for his role as Max von Mayerling in the latter movie. In the film, Mayerling states that he was one of the three great directors of the silent era, along with D.W. Griffith and Cecil B. DeMille; many film critics agree that von Stroheim was indeed one of the greatest early directors. Along with DeMille, he also defined the stereotype of the autocratic film director. (In the 1932 movie The Lost Squadron he stars as a parody of a detail obessed German film director on a US film who tells extras dressed as World War I German soldiers that when they are "dead" to stay dead!)

Erich von Stroheim was married four times, the last to actress Denise Vernac, who had been his long time secretary and companion years before their marriage in 1957 shortly before his death.

Stroheim spent the last part of his life in France where his silent film work was much admired by artists in the French film industry. In France he acted in films, wrote several novels that were published in French, and worked on various unrealized film projects. He was awarded the French Legion of Honor shortly before his death from cancer at age 71 in Maurepas, France.