Fraunhofer was born in Straubing, Bavaria. He became an orphan at the age of 11, and he started working as an apprentice to a harsh glassmaker named Philipp Anton Weichelsberger. In 1801, the workshop in which he was working collapsed and he was buried in the rubble. The rescue operation was led by Maximilian IV Joseph, Prince Elector of Bavaria (the future Maximilian I Joseph). The prince entered Fraunhofer's life, providing him with books and forcing his employer to allow the young Joseph Fraunhofer time to study.

After eight months of study, Fraunhofer went to work at the Optical Institute at Benediktbeuern, a secularised Benedictine monastery devoted to glass making. There he discovered how to make the world's finest optical glass and invented incredibly precise methods for measuring dispersion. In 1818, he became the director of the Optical Institute. Due to the fine optical instruments he had developed, Bavaria overtook England as the centre of the optics industry. Even the likes of Michael Faraday were unable to produce glass that could rival Fraunhofer's.

His illustrious career eventually earned him an honorary doctorate from the University of Erlangen in 1822. In 1824, he was awarded the order of merit, became a noble, and made an honorary citizen of Munich. Like many glassmakers of his era who were poisoned by heavy metal vapours, Fraunhofer died young, in 1826 at the age of 39. His most valuable glassmaking recipes are thought to have gone to the grave with him.

In 1814, Fraunhofer invented the spectroscope, and discovered 574 dark lines appearing in the solar spectrum. These were later shown to be atomic absorption lines, as explained by Kirchhoff and Bunsen in 1859. These lines are still called Fraunhofer lines in his honour. He also invented the diffraction grating and in doing so transformed spectroscopy from a qualitative art to a quantitative science by demonstrating how one could measure the wavelength of light accurately. He found out that the spectra of Sirius and other first-magnitude stars differed from each other and from the sun, thus founding stellar spectroscopy. Ultimately, however, his primary passion was still practical optics, once noting that "In all my experiments I could, owing to lack of time, pay attention to only those matter which appeared to have a bearing upon practical optics". In the early 1990s, a firm that designed and built refracting telescopes was named in his honor, Fraunhofer Systems Company, since the telescopes were based on his design but now the company is part of Burbank Optical Company.