Li was born in Mizhi District (米脂縣), Yan'an, during the late Ming Dynasty period. Initially a shepherd, Li started to learn horse riding and archery at the age of 20, and had also worked in a wine shop and as an ironworker's apprentice.

According to folklore, in 1630, Li was put on public display in an iron collar and shackles for his failure to repay loans to an usurious magistrate, Ai. Ai struck a guard who offered shade and water to Li, whence a group of peasants tore apart Li's shackles, spirited him to a nearby hill, and proclaimed him their leader. Although they were only armed with wooden sticks, Li and his band managed to ambush a group of government soldiers sent to arrest them, and obtained their first real weapons.

At the same time, the Shanxi region was hit by a famine, and the common people resented the Ming government. Li joined Gao YingXiang's (the "Dashing King" (闖王)) rebel army. After Gao's death, Li inherited the title "Dashing King" and became the commander of Gao's army. Within three years, Li succeeded in rallying more than 20,000 men to form a rebel army. They attacked and killed prominent government officials, such as Sun Chuanting, in Henan, Shanxi and Shaanxi provinces. Battles Li fought in this period include the Battle of Chexiang Pass and the Battle of Fengyang.

Li advocated the slogan of "dividing land equally and abolishing the grain taxes payment system" which won great support from the peasants. The song of "killing cattle and sheep, preparing tasty wine and opening the city gate to welcome the Dashing King" was widely spread at that time. The 1642 Kaifeng flood (during the 3rd Battle of Taifeng), caused by breaches of the Yellow River dykes on both sides, ended the siege of Kaifeng and killed over 300,000 of its 378,000 residents. After the battles of Luoyang and Kaifeng, the Ming government was unable to stop Li's rebellion, as most of its military force was involved in the battle against the Manchurians in the north. Li declared himself King of Shun Dynasty in Xi'an, Shaanxi.

In April 1644, Li's rebels sacked the Ming capital of Beijing, and the Chongzhen Emperor committed suicide. Li proclaimed himself as the Emperor of Shun Dynasty.

After Li's army was defeated on May 27, 1644 at the Battle of Shanhai Pass by the combined forces of Ming turncoat general Wu Sangui and the Manchurians, Li fled from Beijing towards his base in Shaanxi. After a number of defeats, Li mysteriously disappeared and there were different theories about his death, at the age of 40. Some suggested that he committed suicide by hanging himself on a lotus tree, while others thought that he was killed by pro-Ming militia during his escape in 1645. Some folk tales hold that Li survived after his defeats and became a monk for the rest of his life.

Although the success of the Manchurian conquest of China was attributed to the weakening of the Ming Dynasty (caused by Li Zicheng's rebellion), ironically, official historiography during the Qing Dynasty period regarded Li as an illegitimate usurper and outlaw. This view sought to discourage and demonize notions of rebellion against the Qing government, by propagating that the Manchurians put an end to Li's illegitimate rule and restore peace to the empire, thus receiving the Mandate of Heaven to rule China. In 20th century China, the anti-Confucian and radical inclinations of the Communist Party of China viewed Li favourably, portraying him as an early revolutionary against feudalism.

Li is featured as a character in some of the works of Hong Kong Wuxia writer Jin Yong. Li's rebellion against the Ming Dynasty is featured in Sword Stained with Royal Blood and his personality is analyzed from the point of view of Yuan Chengzhi, the protagonist. In The Deer and the Cauldron, set in the Qing Dynasty during the early reign of the Kangxi Emperor, Li is revealed to have survived and fathered a daughter, A'ke, with Chen Yuanyuan. Li is also briefly mentioned by name in Flying Fox of Snowy Mountain and Other Tales of the Flying Fox. Li is also the main character of the historical epic novel Li Zicheng authored by Yao Xueyin.