Holberg was the youngest of six brothers. His father, Christian Nielsen Holberg, died before Ludvig was one year old. He was educated in Copenhagen, and was a teacher at the University of Copenhagen for many years. At the same time, he started his successful career as an author, writing the first of a series of comedies.

He began to study theology at the University of Copenhagen and later taught himself law, history and language. He was not particularly interested in theology as a career, settling for an attestats (similar to a Bachelor's degree today), which gave him the right to work as a priest; he did not attempt a baccalaureus, magister or doctorate in the subject, nor did he follow a career as a theology professor, priest, or bishop. In Holberg's youth, it was common to study theology and specialize according to one's degree, for example in Greek, Latin, philosophy or history. For the purpose of becoming a lawyer, it was normal to study abroad. In 1736 the Danish Lawyer degree was established at the University of Copenhagen, a degree which continued to be granted for 200 years, and for which Holberg's writings remained common reading material throughout this time. Holberg was formally appointed assistant professor after having first worked as one without pay. He had to accept the first available position, which was teaching metaphysics. Later, he became a professor and taught rhetoric and Latin. Finally, he was given a professorship in the subject which he prized most and was most productive in, history.

Holberg was well educated and well traveled. In his adolescence, he visited large cities in countries such as The Netherlands and France, and lived for a short period of time in Rome; and for a longer period of time in Oxford, England (1706 – 1708), which was rare during that time as intellectual life was centered in continental Europe. He was not formally admitted to Oxford University, but spent his time there using the libraries and participating in Latin discussions with the English students.

Holberg's travels were a main inspiration in his later writings – these experiences matured him both artistically and morally. Holberg let himself be inspired by old Latin comedies and newer French comedies he had seen in Paris, and street theaters in Rome.

His writings can be divided into three periods, during which he produced mainly history, 1711 - 1718; mainly satirical poetry and stage comedies, 1719 - 1731; and mainly philosophy, 1731 - 1750. His rich output of comedies during the middle period was shaped by his role as house dramatist at Denmark's first public theater, opened in Copenhagen in 1721. These comedies are the works on which his fame rests today, and they were an immediate and immense success. However the poverty caused by the Copenhagen Fire of 1728, brought a wave of depression and puritanism upon the nation, which clashed with Holberg's satirical works, and as a consequence he gave up his comedies switching to philosophical and historical writings in 1731.

In Paris, Holberg met the Danish scientist Jacob Winsløw, who was Catholic. Winsløw tried to convert Holberg, without success. Holberg enjoyed the debate, but it started a rumor in Copenhagen that Holberg had converted to Catholicism as Winsløw had, and as a consequence he felt it necessary to deny this to the Danish public, giving voice to anti - Catholic views on several occasions.

Holberg criticized school doctrines in Christianity, arguing that "Children must be made into men, before they can become Christians" and "If one learns Theology, before learning to become a man, one will never become a man."

Holberg believed in people's inner divine light of reason, and to him it was important that the first goal of education was to teach students to use their senses and intellect, instead of uselessly memorising school books. This was a new, modern understanding of the question of religion, and it shows he was a man of the Age of Enlightenment. Holberg was interested in intellect because he felt that this is what binds society together. He also wondered why there was so much evil in the world, especially when one could let reason lead the way. One could say that he distanced himself from a religious explanation of evil towards a rational / empirical train of thought, and this is important because of his status as an author; both in his time and ours.

Holberg was open to biblical criticism, and Holberg's religious representation was, for the most part, deism. He was critical of the notion of original sin, instead subscribing to the notion of man's free will.

Holberg's declared intentions with his authorship were to enlighten people to better society. This also fits in with the picture of Holberg as of the age of enlightenment. It is worth noting that Holberg enjoyed larger cities with deep culture – small cities and nature did not interest him.

Holberg's concept for science was that it should be inductive (through experience built on observations) and practical to use. A humorous example is his Betænkning over den nu regierende Qvæg-Syge (Memorandum on the prevalent cattle disease), (1745) where he reasons that the disease is caused by microorganisms.

Holberg had to live a modest life in his youth and early adulthood. He earned a living as a tutor and as a travel companion for noble men and tried to work as a private sports coach at the university. He received further support from a grant to travel to other universities in other countries, namely Protestant universities, but this was a condition he did not respect, for he searched out those places where the discussion were the loudest and the experiences were the largest.

During his stay in England, Holberg set his eyes on academic authoring and on his return, he started writing about history. Later he wrote also about natural and international law, possibly at the prompting of an older professor who likened him to natural and international law authors such as Hugo Grotius and Samuel Pufendorf.

To make the most possible profit, Holberg published his own works and sold them as papers under a subscription to interested people, typically in an ark. Holberg also tried, with some success, a publisher in Norway. There, his book about natural and international law was printed in several editions, but did not garner him financial gains.

Holberg lived modestly and was able to invest a large part of the profits from the sale of his books on the side and lend them out or invest them in more active ventures. Several times in his writings he criticized townspeople and nobles who used their resources in unproductive ways to be carried round in chairs, to serve in houses and waste money on luxury. He ate reasonably and did not use his money on being driven around. He said that his travelling on foot, and continued walking, was the reason he could keep his malaria, which had plagued him in the south, under control.

When he came to the conclusion he could put his money in better ventures than trading, he started investing in real estate. His first large property purchase, Brorupgaard close to Havrebjerg, happened in stages; first he lent money to the owner at that time, and later took over the farm himself. Some years later, Holberg also purchased Tersløsegård by Dianalund, the only one of his properties which is preserved because the others in Bergen, Copenhagen and Havrebjerg have been either burned down or torn down.

Holberg was both unmarried and childless, but in the end of his life had a small fortune. He was interested in leaving a legacy and left his estate to Sorø Academy, which was a royal riding academy, with the goal of creating an institution at a university level for young men coming from nobility. Holberg supported the idea of the academy, worked out suggestions to which academic direction it would take and was asked by the king's superintendent to refer some professors for the school. The influential Enlightenment writer Jens Schielderup Sneedorff was appointed professor at Sorø Academy at Holbergs request.

The agreement with the king included that Holberg would be free of taxes from any income from the farms he owned, because the amount donated to the school should be larger than the amount he would pay in taxes. At the same time, he earned the title of Baron of Holberg.

Holberg's casket, a work of Johannes Wiedewelt, can be seen in Sorø Monastery Church.

It can be seen from Holberg's correspondence that he was very conservative with money where he thought it would not be of any use; for example, he was against raising the wage of the pedagogues of Havrebjerg. Holberg commented several times that he was willing to use money if it were put to good use, for example, he would use money on medication and supplies for his farm hands if they suffered from injury or illness. When academia had large economic difficulties, because funding was very limited, Holberg agreed to help fund the academy (at Sorø Academy) while he was alive.

Norwegian Edvard Grieg composed the Holberg Suite (opus 40) to honor Holberg. The suite is in the style of country dances from Holberg's time. The Norwegian University of Bergen awards the Holberg International Memorial Prize. The 4.5 million kroner (ca. €520.000) endowed prize was awarded to Julia Kristeva in 2004, to Jürgen Habermas in 2005, and to Shmuel Eisenstadt in 2006. There is a town named after Holberg on northern Vancouver Island, British Columbia, Canada. It was founded by Danish immigrants in 1907. Dan Shore's opera The Beautiful Bridegroom, for six sopranos, is based on Holberg's last play, Den forvandlede Brudgom. There is a statue of Holberg and a boulevard named after him (Holbergsallmenningen) in the centre of Bergen, Norway.