He was born in Texing in Lower Austria to a single and deeply religious mother Josepha Dollfuss by an unknown father. Dollfuss was educated at a Roman Catholic seminary before deciding to study law at the University of Vienna and then economics at the University of Berlin.

Dollfuss had difficulty gaining admission into the Austro-Hungarian army in World War I because he was short – according to The New York Times, he was 150 cm (4'11") tall. He was eventually accepted and sent to the Alpine Front. He was a highly decorated soldier and was briefly taken prisoner by the Italians as a prisoner of war in 1918. After the war he worked for the agriculture ministry as secretary of the Farmers' Association and became director of the Lower Austrian Chamber of Agriculture in 1927. In 1930 as a member of the conservative Christian Social Party (CS), he was appointed president of the Federal Railway System. (One of the founders of the CS was a hero of Dollfuss's, Karl Freiherr von Vogelsang.) The following year he was named Minister of Agriculture and Forests.

Dollfuss became Chancellor on May 20, 1932 as head of a coalition government, with the pressing goal of tackling the problems of the Great Depression. Much of the Austro-Hungarian Empire's industry had been situated in the areas that became part of Czechoslovakia and Yugoslavia after World War I as a result of the Treaty of Versailles. Post-Versailles Austria was therefore economically disadvantaged. Dollfuss's majority in Parliament was marginal: he had only a one-vote majority.

In March 1933, an argument arose over irregularities in the voting procedure. The president of the National Council (the lower house of parliament) resigned to be able to cast a vote as a parliament member. As a consequence the two vice presidents, belonging to other parties, resigned as well to be able to vote. Without a president, the parliament could not conclude the session. Dollfuss took the three resignations as a pretext to declare that the National Council had become unworkable, and advised President Wilhelm Miklas to issue a decree adjourning it indefinitely. When the National Council wanted to reconvene days after the resignation of the three presidents, Dollfuss had police bar entrance to parliament, effectively eliminating democracy in Austria. From that point onwards, he governed as dictator by emergency decree with absolute power.

Dollfuss was concerned that with German National Socialist (Nazi) leader Adolf Hitler becoming Chancellor of Germany in 1933, the Austrian National Socialists (DNSAP) could gain a significant minority in future elections. As well, the Soviet Union's influence in Europe had increased throughout the 1920s and early 1930s. Dollfuss banned the DNSAP in June 1933 and the communists later on. Under the banner of Christian Social Party, he later on established a one-party dictatorship rule largely modeled after fascism in Italy, banning all other Austrian parties including the Social Democrats.

Dollfuss modeled Austrofascism after Italian fascism, and looked to Italy in support against Nazi Germany. He gained a guarantee from Italy for Austria's independence in August 1933. He also exchanged 'Secret Letters' with Benito Mussolini about ways to guarantee Austrian independence. Mussolini was interested in Austria forming a buffer zone against Nazi Germany. Dollfuss always stressed the similarity of the regimes of Hitler in Germany and Josef Stalin in the Soviet Union, and was convinced that Austrofascism and Italofascism could counter both national socialism and communism in Europe.

In September 1933 Dollfuss merged his Christian Social Party, the nationalist paramilitary Heimwehr (Home Guard) (which encompassed many workers who were unhappy with the radical leadership of the socialist party) and other nationalist and conservative groups to form the Vaterländische Front. Dollfuss escaped an assassination attempt in October 1933 by Rudolf Dertill, a 22-year old who had been ejected from the military for his national socialist views.

In February 1934, Nazi agents in the security forces provoked arrests of Social Democrats and unjustified searches for weapons of the Social Democrats' already outlawed Republikanischer Schutzbund. After the Dollfuss dictatorship took steps against known Social Democrats, the Social Democrats called for nationwide resistance against the Government. A civil war began, which lasted from February 12 until February 27. Fierce fighting took place primarily in the East of Austria, especially in the streets of some outer Vienna districts, where large fortress-like municipal workers' buildings were situated, and in the northern, industrial areas of the province of Styria, where Nazi agents had great interest in a bloodbath between security forces and workers' militias. The resistance was suppressed by police and military power. The Social Democrats were outlawed, and its leaders were imprisoned or fled abroad.

Dollfuss staged a parliamentary session with just his party members present in April 1934 to have his new constitution approved. The session retroactively made all the decrees already passed since March 1933 legal. The new constitution became effective on May 1, 1934 and swept away the last remains of democracy and the system of the first Austrian Republic.

Dollfuss was assassinated in July 25, 1934 by ten Austrian Nazis (Paul Hudl, Franz Holzweber, Otto Planetta and others) of Regiment 89 who entered the Chancellery building and shot him in an attempted coup d'état, the July Putsch. Mussolini mobilized a part of the Italian army on the Austrian border and threatened Hitler with war in the event of a German invasion of Austria to thwart the putsch. The assassination of Dollfuss was accompanied by uprisings in many regions in Italy, resulting in further deaths. In Carinthia a large contingent of northern German Nazis tried to seize power but were subdued by the Italian units nearby. The Nazi assassins in Vienna surrendered and were executed. Kurt Schuschnigg became the new chancellor of Austria.

Dollfuss is buried in the Hietzing cemetery in Vienna beside his wife Alwine Dollfuss (d. 1973) and two of his children, Hannerl and Eva.

Dollfuss was a very short man and his diminutive stature (155 cm = 5'2" or 150 cm = 4'11" according to the New York Times) was the object of satire; among his nicknames were 'Millimetternich' (referring to the autocratic imperial chancellor of Austria from 1815 – 1848, Prince Klemens Wenzel von Metternich), and the 'Jockey'. The New York Times also reported a series of jokes, including how in the coffee houses of Vienna, one could order a 'Dollfuss' cup of coffee instead of a 'Short Black' cup of coffee (black being the colour of the Christian Democratic political faction). In contrast to his own diminutive stature, his personal assistant and secretary Eduard Hedvicek, who later played a significant role in the unsuccessful attempt to save his life was very large and tall man (200 cm = 6'7").