Godwin was born in Wisbech in Cambridgeshire to John and Anne Godwin. Godwin's family on both sides were middle class. It was probably only as a joke that Godwin, a stern political reformer and philosophical radical, attempted to trace his pedigree to a time before the Norman Conquest to the great Earl, Godwin. Godwin's parents adhered to a strict form of Calvinism. His father, a Nonconformist minister in Guestwick in Norfolk, died young, and never inspired love or much regret in his son; but in spite of wide differences of opinion, tender affection always subsisted between William Godwin and his mother, until her death at an advanced age.

William Godwin was educated for his father's profession at Hoxton Academy, where he studied under Andrew Kippis the biographer and Dr Abraham Rees of the Cyclopaedia. At the age of 11, he became the sole pupil of Samuel Newton, who was a disciple of Robert Sandeman. Godwin later characterized Newton as, "... a celebrated north country apostle, who, after Calvin damned ninety-nine in a hundred of mankind, has contrived a scheme for damning ninety-nine in a hundred of the followers of Calvin."

He then acted as a minister at Ware, Stowmarket and Beaconsfield. At Stowmarket the teachings of the French philosophers were brought before him by a friend, Joseph Fawcett, who held strong republican opinions. Godwin came to London in 1782, still nominally as a minister, to regenerate society with his pen — a real enthusiast, who shrank theoretically from no conclusions from the premises which he laid down. He adopted the principles of the Encyclopaedists, and his own aim was the complete overthrow of all existing institutions, political, social and religious. He believed, however, that calm discussion was the only thing needful to carry every change, and from the beginning to the end of his career he deprecated every approach to violence. He was a philosophic radical in the strictest sense of the term.

His first published work was an anonymous Life of Lord Chatham (1783). He published under his own name Sketches of History (1784), consisting of six sermons on the characters of Aaron, Hazael and Jesus, in which, though writing in the character of an orthodox Calvinist, he enunciates the proposition "God Himself has no right to be a tyrant." Introduced by Andrew Kippis, he began to write in 1785 for the New Annual Register and other periodicals, producing also three novels now forgotten. His main contributions for the "Annual Register" were the Sketches of English History he wrote annually, which were yearly summaries of domestic and foreign political affairs. He joined a club called the "Revolutionists," and associated much with Lord Stanhope, Horne Tooke and Holcroft.

In 1793, while the French Revolution was in full swing, Godwin published his great work on political science, Enquiry concerning Political Justice, and its Influence on General Virtue and Happiness. The first part of this book was largely a recap of Edmund Burke's A Vindication of Natural Society - an anarchist critique of the state. Godwin acknowledged the influence of Burke for this portion. The rest of the book is Godwin's positive vision of how an anarchist (or minarchist) society might work. Political Justice was extremely influential in its time: after the writings of Burke and Paine, Godwin's was the most popular written response to the French Revolution. Godwin's work was seen by many as illuminating a middle way between the fiery extremes of Burke and Paine. Prime Minister William Pitt famously said that there was no need to censor it, because at over £1 it was too costly for the average Briton to buy. However, as was the practice at the time, numerous "corresponding societies" took up Political Justice, either sharing it or having it read to the illiterate members. Eventually, it sold over 4000 copies and brought literary fame to Godwin.

Godwin augmented the influence of Political Justice with the publication of a novel that proved equally popular, Things as They Are or The Adventures of Caleb Williams. This tells the story of a servant who finds out a dark secret about Falkland, his aristocratic master, and is forced to flee because of his knowledge. Caleb Williams is essentially the first thriller: Godwin wryly remarked that some readers were consuming in a night what took him over a year to write. Not the least of its merits is a portrait of the justice system of England and Wales at the time and a prescient picture of domestic espionage. Yet Godwin's strenuous Calvinism still obtains, albeit in secular form. At the conclusion of the novel, when Caleb Williams finally confronts Falkland, the encounter results in a fatal wound to the Lord, who immediately admits the justness of Williams' cause. Far from feeling release or happiness, Williams only sees the destruction of someone who remains for him a noble, if fallen person. Implicitly, Caleb Williams ratifies Godwin's assertion that society must be reformed in order for individual behaviour to be reformed, an emphasis that allies him more with Marxism and anarchism than with liberalism. His literary method, as he described it in the introduction to the novel, also proved influential: Godwin began with the conclusion of Caleb being chased through Britain and Ireland and developed the plot backwards. Dickens and Poe both commented on Godwin's ingenuity in doing this.

In response to a treason trial of some of his fellow British Jacobins, among them Thomas Holcroft, Godwin wrote Cursory Strictures on the Charge Delivered by Lord Chief Justice Eyre to the Grand Jury, October 2, 1794 where he forcefully argued that the prosecution's concept of "constructive treason" allowed a judge to construe any behaviour as treasonous. It paved the way for a major, but mostly moral, victory for the Jacobins, as they were acquitted.

However, Godwin's own reputation was eventually besmirched after 1798 by the conservative press, in part because he chose to write a candid biography of his late wife, Mary Wollstonecraft, including accounts of her two suicide attempts and her affair (before her relationship with Godwin) with the American adventurer Gilbert Imlay, which resulted in the birth of Fanny Imlay.

Godwin, consistent in his theory and stubborn in his practice, practically lived in secret for 30 years because of his reputation. However, in its influence on writers such as Shelley and Kropotkin, Political Justice takes its place with Milton's Areopagitica and Rousseau's Émile as a defining anarchist and libertarian text.

By the words "political justice" the author meant "the adoption of any principle of morality and truth into the practice of a community," and the work was therefore an inquiry into the principles of society, of government and of morals. For many years Godwin had been "satisfied that monarchy was a species of government unavoidably corrupt," and from desiring a government of the simplest construction, he gradually came to consider that "government by its very nature counteracts the improvement of original mind," demonstrating anti-statist beliefs that would later be considered anarchist.

Believing in the perfectibility of the race, that there are no innate principles, and therefore no original propensity to evil, he considered that "our virtues and our vices may be traced to the incidents which make the history of our lives, and if these incidents could be divested of every improper tendency, vice would be extirpated from the world." All control of man by man was more or less intolerable, and the day would come when each man, doing what seems right in his own eyes, would also be doing what is in fact best for the community, because all will be guided by principles of pure reason. Such optimism combined with a strong empiricism to support Godwin's belief that the evil actions of men were solely reliant on the corrupting influence of social conditions, and that changing these conditions could remove the evil in man. This is similar to the ideas of his wife, Mary Wollstonecraft, concerning the shortcomings of women being down to their discouraging upbringings.

Godwin did not believe that all coercion and violence was immoral per se, as Bakunin and Tolstoy did, but rather recognized the need for government in the short term and hoped that the time would come when it would be unnecessary. Thus, he was a gradualist anarchist rather than a revolutionary anarchist; Godwin supported the ideology behind the French Revolution but certainly not its means. Neither was he as egalitarian as most anarchists are, but he simply thought that discrimination on grounds other than ability was immoral. His utilitarian case for saving the Archbishop of Canterbury before his mother from a burning house is seen as abhorrent even by many egalitarians.

In 1798, Thomas Robert Malthus wrote An Essay on the Principle of Population in response to Godwin's views on the "perfectibility of society." Malthus wrote that populations inclined to increase in times of plenty, and that only distress, from causes such as food shortages, disease, or war, served to stem population growth. Populations were therefore always doomed to grow until distress was felt, at least by the poorer segment of the society. Consequently, poverty was an inevitable phenomenon of society.

"Let us imagine for a moment Mr. Godwin's beautiful system of equality realized in its utmost purity, and see how soon this difficulty might be expected to press under so perfect a form of society.... Let us suppose all the causes of misery and vice in this island removed. War and contention cease. Unwholesome trades and manufactories do not exist. Crowds no longer collect together in great and pestilent cities... Every house is clean, airy, sufficiently roomy, and in a healthy situation.... And the necessary labours of agriculture are shared amicably among all. The number of persons, and the produce of the island, we suppose to be the same as at present. The spirit of benevolence, guided by impartial justice, will divide this produce among all the members of the society according to their wants.... With these extraordinary encouragements to population, and every cause of depopulation, as we have supposed, removed, the numbers would necessarily increase faster than in any society that has ever yet been known....""

Malthus goes on to argue that under such ideal conditions the population could conceivable double every 25 years. However, the food supply could not continue doubling at this rate for even 50 years. The food supply would become inadequate for the growing population, and then:

"the mighty law of self-preservation expels all the softer and more exalted emotions of the soul.... The corn is plucked before it is ripe, or secreted in unfair proportions; and the whole black train of vices that belong to falsehood are immediately generated. Provisions no longer flow in for the support of the mother with a large family. The children are sickly from insufficient food.... No human institutions here existed, to the perverseness of which Mr. Godwin ascribes the original sin of the worst men. No opposition had been produced by them between public and private good. No monopoly had been created of those advantages which reason directs to be left in common. No man had been goaded to the breach of order by unjust laws. Benevolence had established her reign in all hearts: and yet in so short a period as within fifty years, violence, oppression, falsehood, misery, every hateful vice, and every form of distress, which degrade and sadden the present state of society, seem to have been generated by the most imperious circumstances, by laws inherent in the nature of man, and absolutely independent of it human regulations."

In Political Justice Godwin acknowledged that an increase in the standard of living via his proposals could cause population pressures, but he saw an obvious solution to avoiding distress: “project a change in the structure of human action, if not of human nature, specifically the eclipsing of the desire for sex by the development of intellectual pleasures”. In the 1798 version of his essay, Malthus specifically rejected this possible change in human nature. In the second and subsequent editions, however, he wrote that widespread moral restraint, i.e., postponement of marriage and pre-nuptial celibacy (sexual abstinence), could reduce the tendency of a population to grow until distress was felt.".

In 1820, Godwin published Of Population: An Enquiry Concerning the Power of Increase in the Numbers of Mankind, as a rebuttal to Malthus’s essays. Godwin's main argument was against Malthus's notion that population tended to grow exponentially. Godwin believed that for population to double every twenty-five years (as Malthus had asserted had occurred in the United States, due to the expanse of resources available there) every married couple would have to have at least eight children, given the rate of childhood deaths. Godwin himself was one of thirteen children, but he did not observe the majority of couples having eight children. He therefore concluded: "In reality, if I had not taken up the pen with the express purpose of confuting all the errors of Mr Malthus’s book, and of endeavouring to introduce other principles, more cheering, more favourable to the best interests of mankind, and better prepared to resist the inroads of vice and misery, I might close my argument here, and lay down the pen with this brief remark, that, when this author shall have produced from any country, the United States of North America not excepted, a register of marriages and births, from which it shall appear that there are on an average eight births to a marriage, then, and not till then, can I have any just reason to admit his doctrine of the geometrical ratio."

In his first edition of Political Justice Godwin included arguments favouring the possibility of "earthly immortality" (what would now be called physical immortality), but later editions of the book omitted this topic. Although the belief in such a possibility is consistent with his philosophy regarding perfectibility and human progress, he probably dropped the subject because of political expedience when he realized that it might discredit his other views. Godwin explored the themes of life extension and immortality in his gothic novel St. Leon, which became popular (and notorious) at the time of its publication in 1799, but is now mostly forgotten. St. Leon may have perversely provided inspiration for his daughter's novel Frankenstein.