Robert Fergusson was born in Cap and Feather Close, a vennel off Edinburgh’s Royal Mile, later demolished to make way for what is today the North Bridge. His parents, William and Elizabeth (née Forbes), were originally from Aberdeenshire, but had moved to the city two years previously. He was the third of three surviving children by them. He received formal schooling at the city's Royal High School and the High School of Dundee, leading to matriculation into the University of St Andrews with the assistance of a clan Fergusson bursary in 1765.

In May 1768 Fergusson returned to Edinburgh. His father had died the previous year, his sister Barbara had married, and his older brother Harry had recently left Scotland, enlisting with the British Navy after a business failure. This probably left Fergusson, who had not completed his studies, to support their mother. Any possibility of family support from his maternal uncle, John Forbes of Round Lichnot near Auld Meldrum, ceased when his uncle permanently disowned him after a quarrel. Fergusson, who had rejected the church, medicine and law as career options open to him due to his university training, finally settled in Edinburgh as a copyist, the occupation of his father. Fergusson's relatively lowly employment gave him liberty to pursue his writing career. There is good evidence he had already been developing literary ambitions as a student at St Andrews where he claimed to have begun drafting a play on the life of William Wallace. His earliest extant poem, also written at this time, is a satirical elegy in Scots on the death of David Gregory, one of the university’s professors of maths.

Fergusson involved himself in Edinburgh's social and artistic circles mixing with musicians, actors, artists and booksellers who were also publishers. His friend, the theatre-manager William Woods, regularly procured him free admission to theatre productions and in mid 1769 he struck up a friendship with the Italian castrato singer Giusto Fernando Tenducci who was touring with a production of Artaxerxes. Fergusson's literary debut came when Tenducci asked him to contribute Scots airs for the Edinburgh run of the opera. He supplied three, which were performed and published with the libretto.

After February 1771 he began to contribute poems to Walter Ruddiman's Weekly Review. These at first were generally conventional English language works which were either satirical or fashionably pastoral in the manner of William Shenstone. His first Scots poem to be published (The Daft Days) appeared on 2 January 1772, and from that date on he submitted works in both languages. Popular reception for his Scots work, as evidenced in a number of verse epistles in its praise, helped persuade Ruddiman to publish a first general edition of his poems which appeared in early 1773 and sold around 500 copies, allowing Fergusson to clear a profit.

In mid 1773 Fergusson attempted his own publication of Auld Reekie, now regarded as his masterpiece, a vivid verse portrait of his home city intended as the first part of a planned long poem. It demonstrated his ambition to further extend the range of his Scots writing. This also included an aspiration to make Scots translations of Virgil's Georgics, thus following in the footsteps of Gavin Douglas. However, if any drafts for such a project were made, none survive. The poet was a hard self-critic and is known latterly to have destroyed manuscripts of his writing.

Fergusson was a member of the Cape Club which regularly assembled at a tavern in Craig's Close. Each member had a name and character assigned to him, which he was required to maintain at all gatherings. David Herd (1732-1810), the collector of the classic edition of Ancient and Modern Scottish Songs (1776), was "sovereign" of the Cape (in which he was known as "Sir Scrape") when Fergusson was dubbed a knight of the order, with the title of "Sir Precentor", in allusion to his fine voice. Alexander Runciman, the historical painter, his pupil Jacob More, and Sir Henry Raeburn were all members. The old minute books of the club abound with pencilled sketches by them, one of the most interesting of which, ascribed to Runciman, is a sketch of Fergusson in his character of "Sir Precentor".

Fergusson's literary energy and active social life were latterly overshadowed by what may have been depression although there are likely to have been other factors. From around mid-1773 his surviving works appear to become more darkly melancholic. In late 1773, in his "Poem to the Memory of John Cunningham" which was written on hearing news of the death of that poet in an asylum in Newcastle, Fergusson expressed fears of a similar fate. His fears were founded. Around the back end of the year 1774, after sustaining a head injury in circumstances that are obscure, Fergusson was submitted against his will into Edinburgh's Darien House "hospital" where, after a matter of weeks, he suddenly died. He had only just turned 24. He was buried in an unmarked grave on the west side of the Canongate Churchyard.

A memorial headstone, designed by the local architect Robert Burn, for Fergusson's grave was privately commissioned in 1787 by Robert Burns and paid for at his own expense. It was further inscribed by Robert Louis Stevenson in the later nineteenth century and survives in the existing monument today.