Born in Vienna, he was a son of his predecessor Ferdinand I, Holy Roman Emperor and Anna of Bohemia and Hungary (1503–1547). Anne was a daughter of King Ladislaus II of Bohemia and Hungary and his wife Anne de Foix. Educated principally in Spain, he gained some experience of warfare during the campaign of his paternal uncle Charles V, Holy Roman Emperor against France in 1544, and also during the War of the league of Schmalkalden, and soon began to take part in imperial business. Having in September 1548 married his cousin Maria, daughter of Charles V, he acted as the emperor's representative in Spain from 1548 to 1550, returning to Germany in December 1550 in order to take part in the discussion over the imperial succession. Charles V wished his son Philip (afterwards king of Spain) to succeed him as emperor, but his brother Ferdinand, who had already been designated as the next occupant of the imperial throne, and Maximilian objected to this proposal. At length a compromise was reached. Philip was to succeed Ferdinand, but during the former's reign Maximilian, as king of the Romans, was to govern Germany. This arrangement was not carried out, and is only important because the insistence of the emperor seriously disturbed the harmonious relations which had hitherto existed between the two branches of the Habsburg family; an illness which befell Maximilian in 1552 was attributed to poison given to him in the interests of his cousin and brother-in-law, Philip of Spain.

About this time he took up his residence in Vienna, being engaged mainly in the government of the Austrian dominions and in defending them against the Turks. The religious views of the king of Bohemia, as Maximilian had been called since his recognition as the future ruler of that country in 1549, had always been somewhat uncertain, and he had probably learned something of Lutheranism in his youth; but his amicable relations with several Protestant princes, which began about the time of the discussion over the succession, were probably due more to political than to religious considerations. However, in Vienna he became very intimate with Sebastian Pfauser, a court preacher with strong leanings towards Lutheranism, and his religious attitude caused some uneasiness to his father. Fears were freely expressed that he would definitely leave the Catholic Church, and when Ferdinand became emperor in 1558 he was prepared to assure Pope Paul IV that his son should not succeed him if he took this step. Eventually Maximilian remained nominally an adherent of the older faith, although his views were tinged with Lutheranism until the end of his life. After several refusals he consented in 1560 to the banishment of Pfauser, and began again to attend the services of the Catholic Church.

In November 1562 Maximilian was chosen king of the Romans, or German king, at Frankfurt, where he was crowned a few days later, after assuring the Catholic electors of his fidelity to their faith, and promising the Protestant electors that he would publicly accept the confession of Augsburg when he became emperor. He also took the usual oath to protect the Church, and his election was afterwards confirmed by the papacy. In September 1563 he was crowned king of Hungary by the Archbishop of Esztergom, Nicolaus Olahus, and on his father's death, in July 1564, he succeeded to the empire and to the kingdoms of Hungary, Croatia and Bohemia.

The new emperor had already shown that he believed in the necessity for a thorough reform of the Church. He was unable, however, to obtain the consent of Pope Pius IV to the marriage of the clergy, and in 1568 the concession of communion in both kinds to the laity was withdrawn. On his part Maximilian granted religious liberty to the Lutheran nobles and knights in Austria, and refused to allow the publication of the decrees of the council of Trent. Amidst general expectations on the part of the Protestants he met his first Diet of Augsburg in March 1566. He refused to accede to the demands of the Lutheran princes; on the other hand, although the increase of sectarianism was discussed, no decisive steps were taken to suppress it, and the only result of the meeting was a grant of assistance for the Turkish War, which had just been renewed. Collecting a large army Maximilian marched to defend his territories; but no decisive engagement had taken place when a truce was made in 1568, and the emperor continued to pay tribute to the sultan as the price of peace in the western and northern areas of the Hungarian kingdom still under Habsburg control.

Meanwhile the relations between Maximilian and Philip of Spain had improved; and the emperor's increasingly cautious and moderate attitude in religious matters was doubtless because the death of Philip's son, Don Carlos, had opened the way for the succession of Maximilian, or of one of his sons, to the Spanish throne. Evidence of this friendly feeling was given in 1570, when the emperor's daughter, Anna, became the fourth wife of Philip; but Maximilian was unable to moderate the harsh proceedings of the Spanish king against the revolting inhabitants of the Netherlands. In 1570 the emperor met the diet of Speyer and asked for aid to place his eastern borders in a state of defence, and also for power to repress the disorder caused by troops in the service of foreign powers passing through Germany. He proposed that his consent should be necessary before any soldiers for foreign service were recruited in the empire; but the estates were unwilling to strengthen the imperial authority, the Protestant princes regarded the suggestion as an attempt to prevent them from assisting their co-religionists in France and the Netherlands, and nothing was done in this direction, although some assistance was voted for the defense of Austria. The religious demands of the Protestants were still unsatisfied, while the policy of toleration had failed to give peace to Austria. Maximilian's power was very limited; it was inability rather than unwillingness that prevented him from yielding to the entreaties of Pope Pius V to join in an attack on the Turks both before and after the victory of Lepanto in 1571; and he remained inert while the authority of the empire in north-eastern Europe was threatened.

In 1575, Maximilian was elected by the part of Polish and Lithuanian magnates to be the King of Poland in opposition to Stephan IV Bathory, but he did not manage to become widely accepted there and was forced to leave Poland.

Maximilian died on 12 October 1576 in Regensburg while preparing to invade Poland. On his deathbed he refused to receive the last sacraments of the Church. He is buried in St. Vitus Cathedral in Prague.

By his wife Maria of Spain, daughter of Charles V, Holy Roman Emperor, and Isabella of Portugal, he had a family of nine sons and six daughters. He was succeeded by his eldest surviving son, Rudolf, who had been chosen king of the Romans in October 1575. Another of his sons, Matthias, also became emperor; three others, Ernest, Albert and Maximilian, took some part in the government of the Habsburg territories or of the Netherlands, and a daughter, Elizabeth, married Charles IX of France.

Maximilian's policies of religious neutrality and peace in the Empire afforded its Roman Catholics and Protestants a breathing-space after the first struggles of the Reformation. He disappointed the German Protestant princes by his refusal to invest Protestant administrators of bishoprics with their imperial fiefs. Yet on a personal basis he granted freedom of worship to the Protestant nobility and worked for reform in the Roman Catholic Church, including the right of priests to marry. This failed because of Spanish opposition. Maximilian II was a member of the Order of the Golden Fleece.