Oskar Morgenstern was born on January 24, 1902 in Görlitz, Germany. He graduated from the University of Vienna, earning a doctorate in political science in 1925. He received a scholarship from the Rockefeller Foundation to further his studies in the United States. Upon his return to Austria in 1929, Morgenstern started work at the University of Vienna, first as a lecturer and then a professor in economics. During that time he belonged to the so-called "Austrian circus," a group of Austrian economists including Gottfried Haberler and Friedrich von Hayek, who met regularly with Ludwig von Mises to discuss different issues in the field. The group was the Austrian equivalent of Keynes's "Cambridge Circus."

In 1938 Morgenstern traveled to the United States as a visiting professor in economics at Princeton University in New Jersey. It was there that he heard the news that Adolf Hitler had occupied Vienna, and that it would probably be unwise to return to Austria. Morgenstern decided to stay in the United States, becoming a naturalized citizen in 1944. After Morgenstern became a member of the faculty at Princeton he started to work closely with mathematician John von Neumann, developing a theory of predicting economic behavior. In 1944, they wrote Theory of Games and Economic Behavior, recognized as the first book on game theory.

Morgenstern married Dorothy Young in 1948.

Throughout the 1950s and 1960s Morgenstern continued to write on different economic issues, publishing On the Accuracy of Economic Observations in 1950, Prolegomena to a Theory of Organization in 1951, and The Question of National Defense and International Transactions and Business Cycles in 1959. He retired from Princeton in 1970.

Morgenstern accepted the position of professor in economics at New York University in 1970, where he remained until his death in 1977. New York University appointed Morgenstern its distinguished professor of game theory and mathematical economics just before his death.

Morgenstern died in Princeton, New Jersey, on July 26, 1977.