He was born in Santiago, the second son (third child, after his sister Javiera and his brother Juan José) of Ignacio de la Carrera y Cuevas and Francisca de Paula Verdugo Fernández de Valdivieso y Herrera. Carrera carried out his first studies in the Convictorio Carolino, the best school in the country at the time. During these years, he became friends with Manuel Rodríguez, classmate and neighbour, future guerrilla leader of the Chilean independence movement.

After school he was sent to Spain by his parents. There he joined the Spanish Army in 1808. He fought well against the Napoleonic forces, obtaining the rank of Sergeant Major and receiving the command of the Húsares de Galicia regiment. In Spain he also made contact with the United States independence movement and joined the Cádiz Order.

When he learned about the Junta de Gobierno that had been established in Chile to rule during the absence of the Spanish monarch, he went back to Chile and got involved in politics. As the Carreras were one of the three major political forces, he became part of the government. On 15 November 1811 the Carreras made a coup d'état and José Miguel became the sole ruler of Chile (his brothers were military commanders). Because of his more personal and Chilean-national point of view about Chilean independence, Carrera came into conflict with the Lautaro Lodge, whose more Latin-Americanist centered objective was to unite all Latin America in the same way as the United States of America.

During his government, and influenced by Joel Roberts Poinsett, first United States envoy to Chile, he helped create several Chilean national symbols and institutions: Carrera created the first Chilean Constitution, made the first Chilean flag and coat of arms, and promoted the press by bringing to Chile the first printing press, which directly led to the appearance of the first newspaper in Chile (La Aurora de Chile). Carrera also established September 18 as the national day (which is still celebrated in Chile).

As the Spanish Army and Navy invaded the South of Chile, he became Commander in Chief of the patriotic forces and left the government. He had a successful campaign, expelling the Spaniards from the city of Concepción. After the Surprise of El Roble, in which Carrera was surrounded and had to jump into a river to save himself (not without first shooting straight at the enemy's head of commander), the government relieved him of his duties and appointed Brigadier Bernardo O'Higgins, who had managed to repel the enemy incursion. Carrera was taken prisoner by the Spaniards but managed to escape, and went on to overthrow the government for the third time.

Bernardo O'Higgins did not acknowledge Carrera and fought against the Carrerian army at the Battle of Tres Acequias (Carrera's youngest brother, Luis Carrera, defeated O'Higgins using a cunning defensive strategy). During this chaos, the Spanish army retook Concepción and advanced towards Santiago. Carrera and O'Higgins decided to re-unite the army; Carrera's plan was to draw the Spaniards to the Angostura del Paine (Paine Narrows), while O'Higgins wanted to make his stand at the town of Rancagua. It was settled to make it at the Angostura de Paine, a gorge that formed an easily defended bottleneck, which seemed to be the most logical plan considering that the local forces were outnumbered. However, at the last hour and against direct orders, O'Higgins garrisoned the Chilean forces at the main square of Rancagua. He and his forces were promptly surrounded, and after an entire day of fighting the Spanish commander Mariano Osorio was victorious in the Disaster of Rancagua, (1–2 October 1814).

With the defeat of the Chilean forces, many patriots escaped to Mendoza, which was governed at the time by José de San Martín. As San Martín was a member of the Lautaro Lodge, he welcomed O'Higgins and his allies — but not the Carreras, especially as San Martin believed that because of his charisma and popularity, José Miguel represented a potential rival. José Miguel and his brothers were forced to travel to Buenos Aires, where Carlos Maria Alvear, a friend of Carrera since the war against Napoleon in Spain, had just been proclaimed national hero. Alvear would shortly go on to take power in Argentina. While Alvear was in government, Carrera was in a good position in Buenos Aires. But after Alvear was overthrown, power was taken by members of the Lautaro Lodge, forcing Carrera to leave Buenos Aires for the United States. With the help of Commodore David Porter, and by sheer force of personality, José Miguel Carrera managed to obtain — on credit — five ships with American crews for the Chilean independence enterprise.

However, as he arrived in Buenos Aires with this fleet, the pro-San Martin Argentine government confiscated the ships and put Carrera in prison. During his imprisonment, San Martín — who wanted to conquer Chile and make it part of his burgeoning empire — organized an army in Mendoza, made up of mainly African slaves and Argentine soldiers, and a token few Chilean irregulars. This group crossed the Andes, in a feat recognized by military historians as being akin to Hanibal's crossing the Alps, and defeated the Spaniards in the Battle of Chacabuco on 12 February 1817.

Carrera received help from the United States' envoy that came with him and was able to escape from San Martin's forces, taking refuge in Montevideo under the protection of General Carlos Frederico Lecor. While in Montevideo, his brothers Juan José and Luís plotted against O'Higgins, because of his having betrayed the Carreras to San Martin and the Lautaro Lodge. They were arrested in Mendoza and executed by the command of Bernardo de Monteagudo after the Royalists defeated San Martin and O'Higgins at the Second Battle of Cancha Rayada. The Lautaro Lodge had already made plans that, in case of defeat, all political enemies — including the Carrera brothers — would be executed. After José Miguel was informed of this, he openly and vociferously began opposing both San Martin and O'Higgins.

Subsequently, Jose Miguel Carrera was one of the main promoters of the Argentine federalist war and fought against the Unitarian government. Carrera and the federalist forces defeated the pro-San Martin government and entered Buenos Aires. On 23 February 1820, they signed the Treaty of Pilar, the document that established the Argentine federal system. However, because of national rivalries, Carrera is not often recognised in popular histories of Argentina. As a result of this treaty, Carrera received monies and troops, with which he marched towards Chile. One of Carrera's principal allies before his death was the Boroanos tribe that had recently migrated from Araucanía to the Pampas. However, he was intercepted in Mendoza and taken prisoner. After a show trial, he was executed on 4 September 1821.

Carrera is today considered one of the Padres de la Patria (Fathers of the Nation). The conflict between followers of O'Higgins and Carrera continues to some extent to this day, when many declare themselves Carreristas or O'Higginistas. Carreristas claim that his figure is not given enough recognition, in comparison with O'Higgins, whom they openly despise.

Apart from ending slavery in Chile, Carrera abolished the titled nobility and ended their legal prerogatives and privileges. He also founded the first free newspaper in the nation, La Aurora de Chile; instituted the first national flag and national seal; and founded the first free secular school, which eventually became known as the Instituto Nacional, its full name being Instituto Nacional General José Miguel Carrera; several Chilean presidents and dozens of senators and parliamentarians have graduated from its halls. In the Patagonian region in the south of Chile, there is the General Carrera Lake.

All five of Carrera's legitimate offspring married prominently in Chilean society, and their descendants, who number in the few hundred, make up the bulk of the Chilean upper classes. His grandson, Ignacio Carrera Pinto, was a hero who died during the Battle of La Concepción, in the War of the Pacific. Another of his descendents was Federico Santa María, who gave his money to build Federico Santa María Technical University, one of the best technical and engineering schools in Chile.