He was born in Watervliet, New York, one of eight children of Josiah and Elizabeth Phillips Stanford. Stanford's ancestors settled in the Mohawk Valley of New York around 1720. He attended Clinton Liberal Institute, in Clinton, New York, and studied law at Cazenovia Seminary in Cazenovia, New York and later in Albany. He was admitted to the bar in 1848, and then moved to Port Washington, Wisconsin. He married Jane Elizabeth Lathrop in Albany on September 30, 1850.

In 1852, having lost his law library and other property by fire, he moved to California and began mining for gold at Michigan Bluff in Placer County, California. He subsequently went into business with his three brothers, who had preceded him to the Pacific coast. During this time he worked with his brothers as keeper of a general store for miners, served as a Justice of the Peace and helped organize the Sacramento Library Association, which later became the Sacramento Public Library. In 1856 he moved to San Francisco and engaged in mercantile pursuits on a large scale.

He was a delegate to the 1860 Republican National Convention. As one of The Big Four, he cofounded and was made president of the Central Pacific Railroad company in 1861. The railroad's first locomotive was named Gov. Stanford in his honor.

As president of the Central Pacific, he directed its construction over the mountains, building 530 miles in 293 days. As head of the railroad company which built the first transcontinental railway line over the Sierra Nevada, Stanford hammered in the famous golden spike on May 10, 1869.

In 1872 Stanford commissioned Eadweard Muybridge to use newly invented photographic technology to establish whether galloping horses ever lift all four hooves off the ground. (The verdict, by the way, was that horses do lift all four hooves off the ground.) This project, which illustrated motion through a series of still images viewed together, was a forerunner of motion picture technology.

Stanford served as president of Southern Pacific Railroad from 1885 to 1890, while continuing to serve as the head of the Central Pacific Railroad until his death in 1893. As a railroad developer, Stanford encouraged Chinese immigration to find workers for the railroad construction. However, when jobs were scarce, Stanford made them scapegoats. Stanford encouraged the California legislature to pass taxes and unfair regulations which specifically targeted Chinese.

Stanford, a member of the Republican Party, was politically active. He was the eighth Governor of California, serving from December, 1861 to December, 1863. During his gubernatorial tenure, he cut the state's debt in half, and advocated for the conservation of forests. He also oversaw the establishment of the state normal school in San Francisco, later to become San José State University. Following Stanford's service, the term for governorship changed from two years to four years, in line with legislation passed during his time in office. He later served slightly more than one term in the United States Senate, from 1885 until his death in 1893 at age 69. He served for four years as Chairman of the U.S. Senate Committee on Public Buildings and Grounds.

He also owned two wineries, the Leland Stanford Winery (founded in 1869) and run by his brother Josiah, and the great Vina farm of 55,000 acres (220 km²) in Tehama County, containing what was then the largest vineyard in the world at 13,400 acres (54 km²), the Gridley tract of 22,000 acres (90 km²) in Butte County and the Palo Alto Stock Farm, which was the home of his famous thoroughbred racers, Electioneer, Anon, Sunol, Palo Alto and Advertiser. The Palo Alto breeding farm gave Stanford University its nickname of The Farm. The Stanfords also owned a stately mansion in Sacramento, California (this was the birthplace of their only son, and now a house museum used for California state social occasions), as well as a home in San Francisco's Nob Hill district.

With his wife Jane, Stanford founded Leland Stanford Junior University as a memorial for their only child, Leland Stanford, Jr., who died as a teenager of typhoid while on a trip to Florence, Italy. About $20 million ($400 million in 2005 dollars) of the Stanford fortune originally went into the university, with the estimated total fortune approximately $50 million ($1 billion in 2005 dollars) as of the late 1880s.

Leland Stanford died at home in Palo Alto, California and is buried in the Stanford family mausoleum on the Stanford campus.