Henri Marie Raymond de Toulouse-Lautrec-Monfa was born in Albi, Tarn in the Midi-Pyrénées région of France, the firstborn child of Comte Alphonse and Comtesse Adèle de Toulouse-Lautrec. He was therefore a member of an aristocratic family (descendants of the Counts of Toulouse and Lautrec and the Viscounts of Montfa, a village and commune of the Tarn department of southern France). A younger brother was also born to the family on 28 August 1867, but died the following year. After the death of his brother his parents separated and a nanny took care of Henri through this time. At the age of 8, Henri left to live with his mother in Paris. Here he started to draw his first sketches and caricatures on his exercise workbooks. The family quickly came to realise that Henri's talent lay with drawing and painting, and a friend of his father named Rene Princeteau visited sometimes to give informal lessons. Some of Henri's early paintings are of horses, a specialty of Princeteau, and something that he would later visit with his 'Circus Paintings'. In 1875 Henri returned to Albi because his mother recognised his health problems. He took thermal baths at Amélie-les-Bains and his mother consulted doctors in the hope of finding a way to improve her son's growth and development. The Comte and Comtesse themselves were first cousins (Henri's two grandmothers being sisters) and Henri suffered from a number of congenital health conditions attributed to this tradition of inbreeding.

At the age of 13 Henri fractured his right thigh bone, and at 14, the left. The breaks did not heal properly. Modern physicians attribute this to an unknown genetic disorder, possibly pycnodysostosis (also sometimes known as Toulouse-Lautrec Syndrome), or a variant disorder along the lines of osteopetrosis, achondroplasia, or osteogenesis imperfecta. Rickets aggravated with praecox virilism has also been suggested. His legs ceased to grow, so that as an adult he was only 1.52 m (5 ft) tall, having developed an adult-sized torso, while retaining his child-sized legs, which were 0.70 m (27.5 in) long. He is also reported to have had hypertrophied genitals. Physically unable to participate in most of the activities typically enjoyed by men of his age, Toulouse-Lautrec immersed himself in his art. He became an important Post-Impressionist painter, art nouveau illustrator, and lithographer; and recorded in his works many details of the late 19th-century bohemian lifestyle in Paris. Toulouse-Lautrec also contributed a number of illustrations to the magazine Le Rire during the mid-1890s.

After failing his college entrance exams the first time, Henri passed the 2nd time and finished his studies. During his stay in Nice, his progress in painting and drawing impressed Princeteau, who persuaded Henri's parents to let him return to Paris and study under the acclaimed portrait painter Léon Bonnat. Henri's mother had high ambitions and, with aims of Henri becoming a fashionable and respected painter, she used the family influence to get Henri into Bonnat's studio.

Toulouse-Lautrec was drawn to Montmartre, an area of Paris famous for its bohemian lifestyle and for being the haunt of artists, writers, and philosophers. Studying with Bonnat placed Henri in the heart of Montmartre, an area that he would rarely leave over the next 20 years. After Bonnat took a new job Henri moved to the studio of Fernand Cormon in 1882 and studied for a further 5 years, here making the group of friends he would keep for the rest of his life. It was at this period in his life he first met Emile Bernard and van Gogh. Cormon, whose instruction was more relaxed than Bonnat's, allowed his pupils to roam Paris, looking for subjects to paint. In this period Toulouse-Lautrec had his first encounter with a prostitute, reputedly sponsored by his friends, and this led him to paint his first painting of the prostitutes of Montmartre, a woman rumoured to be called Marie-Charlotte.

With his studies finished in 1887 he participated in an exposition in Toulouse under the pseudonym "Tréclau", an anagram of the family name 'Lautrec'. He later exhibited in Paris with van Gogh and Louis Anquetin.

From 1889 until 1894, Henri took part in the "Independent Artists' Salon" on a regular basis. He made several landscapes of Montmartre. It was in this era that the 'Moulin Rouge' opened. Tucked deep into Montmartre was the garden of Monsieur Pere Foret where Toulouse-Lautrec executed a series of pleasant plein-air paintings of Carmen Gaudin, the same red-head model who appears in The Laundress (1888). When the nearby Moulin Rouge cabaret opened its doors, Toulouse-Lautrec was commissioned to produce a series of posters. His mother had left Paris and while Henri still had a regular income from his family, making posters offered him a living of his own. Other artists looked down on the work, but Henri was so aristocratic he didn't care. Thereafter, the cabaret reserved a seat for him, and displayed his paintings. Among the well-known works that he painted for the Moulin Rouge and other Parisian nightclubs are depictions of the singer Yvette Guilbert; the dancer Louise Weber, known as the outrageous La Goulue ("The Glutton"), who created the "French Can-Can"; and the much more subtle dancer Jane Avril.

Henri de Toulouse-Lautrec came from a family of Anglophiles, and while he wasn't as fluent as he pretended to be he spoke English well enough to travel to London. The business of making posters led Henri to London, gaining him work that led to the making of the 'Confetti' poster, and the bicycle advert 'La Chaîne Simpson'. It was during his time in London that he met and befriended Oscar Wilde, and when Wilde faced imprisonment in Britain, Henri was a very vocal supporter. Toulouse-Lautrec's portrait of Wilde was the same year as Wilde's trial.

Lautrec was often mocked for his short stature and physical appearance, and this led him to drown his sorrows in alcohol. At first this was just beer and wine, but his tastes quickly expanded. He was one of the notable Parisians who enjoyed American style cocktails, France being a nation of wine purists. He would have parties at his house on a Friday night and force his guests to try them. The invention of the cocktail "Earthquake" or Tremblement de Terre, is attributed to Toulouse-Lautrec; a potent mixture containing half absinthe and half cognac, (in a wine goblet, 3 parts Absinthe and 3 parts Cognac sometimes served with ice cubes or shaken in a cocktail shaker filled with ice). 1893 saw Lautrec's alcoholism begin to take its toll, and as those around him began to realize the seriousness of his condition there were rumors of a syphilis infection. Finally, in 1899, his mother and a group of concerned friends had him briefly institutionalized. He had even gone to the length of having a cane that he could hide alcohol in so he could have a drink on him at all times. An alcoholic for most of his adult life, Toulouse-Lautrec was placed in a sanatorium shortly before his death. He died from complications due to alcoholism and syphilis at the family estate in Malromé at the age of 36. He is buried in Verdelais, Gironde, a few kilometers from the Château Malromé, where he died.

Toulouse-Lautrec's last words reportedly were: "Le vieux con!" ("The old fool!", although the word "con" can be meant in both simple and vulgar terms). This was his goodbye to his father.

After Toulouse-Lautrec's death, his mother, the Comtesse Adèle Toulouse-Lautrec, and Maurice Joyant, his art dealer, promoted his art. His mother contributed funds for a museum to be built in Albi, his birthplace, to house his works.

Throughout his career, which spanned less than 20 years, Toulouse-Lautrec created 737 canvases, 275 watercolours, 363 prints and posters, 5,084 drawings, some ceramic and stained glass work, and an unknown number of lost works. His debt to the Impressionists, in particular the more figurative painters Manet and Degas, is apparent. His style was also influenced by the classical Japanese woodprints which became popular in art circles in Paris. In the works of Toulouse-Lautrec can be seen many parallels to Manet's detached barmaid at A Bar at the Folies-Bergère and the behind-the-scenes ballet dancers of Degas. He excelled at capturing people in their working environment, with the colour and the movement of the gaudy night-life present, but the glamour stripped away. He was masterly at capturing crowd scenes in which the figures are highly individualised. At the time that they were painted, the individual figures in his larger paintings could be identified by silhouette alone, and the names of many of these characters have been recorded. His treatment of his subject matter, whether as portraits, scenes of Parisian night-life, or intimate studies, has been described as both sympathetic and dispassionate.

Toulouse-Lautrec's skilled depiction of people relied on his painterly style which is highly linear and gives great emphasis to contour. He often applied the paint in long, thin brushstrokes which would often leave much of the board on which they are painted showing through. Many of his works may best be described as drawings in coloured paint.