Born in Mulhouse (Mülhausen) in Alsace, Dreyfus was the youngest of seven children born to Raphael and Jeannette Dreyfus, a prosperous, self-made, Jewish textile manufacturer who had started as a peddler. The family moved to Paris from Alsace after the Franco - Prussian War, when in 1871 Alsace - Lorraine was annexed by the German Empire. The Dreyfus family had long been established in the area that traditionally had been German speaking, and Raphael spoke Yiddish and conducted business affairs in the German language. The first language of most of Alfred's elder brothers and sisters was German or one of the Alsatian dialects. Alfred and his brother were the only children to receive a fully French education.

In 1880, Dreyfus graduated as a sub-lieutenant from the elite École polytechnique military school in Paris, where he received military training and an education in the sciences. His entry into the military was influenced by his experience of seeing Prussian troops enter his hometown in 1871 when he was eleven years old. From 1880 to 1882, he attended the artillery school at Fontainebleau to receive more specialized training as an artillery officer. On graduation he was attached to the first division of the 32nd Cavalry Regiment and promoted to lieutenant in 1885. In 1889, he was made adjutant to the director of the Établissement de Bourges, a government arsenal, and promoted to captain.

On 18 April 1891, Dreyfus married Lucie Hadamard (1870 – 1945). They had two children, Pierre (1891 - 1946) and Jeanne (1893 - 1981). Three days after the wedding, Dreyfus received notice that he had been admitted to the École Supérieure de Guerre or War College. Two years later, in 1893, he graduated ninth in his class with honorable mention and was immediately designated as a trainee in the French Army's General Staff headquarters, where he would be the only Jewish officer. His father Raphaël died on 13 December 1893.

At the War College examination in 1892, his friends had expected him to do well. However, one of the members of the panel, General Bonnefond, felt that "Jews were not desired" on the staff, and gave Dreyfus poor marks, lowering his overall grade; he did the same to another Jewish candidate, Lieutenant Picard. Learning of this injustice, the two officers lodged a protest with the director of the school, General Lebelin de Dionne, who expressed his regret for what had occurred, but said he was powerless to take any steps in the matter. The protest would later count against Dreyfus.

In 1894, the French Army's counter - intelligence section, led by Lt. Col. Sandherr, became aware that new artillery information was being passed to the Germans by a highly placed spy most likely to be in the General Staff. Suspicion quickly fell upon Dreyfus who was arrested for treason on October 15, 1894. On January 5, 1895, Dreyfus was summarily convicted in a secret court martial, publicly stripped of his army rank, and sentenced to life imprisonment on Devil's Island in French Guiana.

In August 1896, the new chief of French military intelligence, Lt Colonel Picquart, reported to his superiors that he had found evidence to the effect that the real traitor was a Major Ferdinand Walsin Esterhazy. Picquart was silenced by being transferred, in November 1896, to the southern desert of Tunisia. When reports of an army cover-up and Dreyfus's possible innocence were leaked to the press, a heated debate ensued about anti-Semitism, France's identity as a Catholic nation and a republic founded on equal rights for all citizens. On September 19, 1899, following a passionate campaign by his supporters, including leading artists and intellectuals like Émile Zola, Dreyfus was pardoned by President Émile Loubet in 1899 and released from prison. He had been subjected to a second trial in that year and again declared guilty of treason despite the evidence in favor of his innocence. Dreyfus, however, officially remained a traitor in a French court of law and sadly remarked upon his release:

"The government of the Republic has given me back my freedom. It is nothing for me without my honor."

During that time, he lived with one of his sisters at Carpentras, and later at Cologny.

On July 12, 1906, Dreyfus was officially exonerated by a military commission. The day after his exoneration, he was readmitted into the army with a promotion to the rank of Major ("Chef d'Escadron"). A week later, he was made a Knight of the Legion of Honour, and subsequently assigned to command an artillery unit at Vincennes. On October 15, 1906, he was placed in command of another artillery unit at Saint-Denis.

Dreyfus was present at the ceremony removing Zola's ashes to the Panthéon in 1908, when he was wounded in the arm by a gunshot from Louis Gregori, a disgruntled journalist, in an assassination attempt.

Dreyfus's time in prison, notably at Devil's Island, had been difficult on his health, and he was granted early retirement in October 1907. As a reserve officer, he re-entered the army, as a Major of Artillery, at the outbreak of World War I in 1914. Serving throughout the war, Dreyfus rose to the rank of Lieutenant Colonel. By now middle aged, Dreyfus served mostly behind the lines of the Western Front, in part as commander of an artillery supply column. However, he also performed front line duties in 1917, notably at Verdun and on the Chemin des Dames. Finally, Dreyfus was promoted to the rank of Officier de la Légion d'honneur in November 1918. Dreyfus's son, Pierre, also served throughout the entire war as an artillery officer, receiving the Croix de Guerre for his services.

Dreyfus died in Paris aged 75, on 12 July 1935, 29 years to the day after his official exoneration. Two days later, his funeral cortège passed the Place de la Concorde through the ranks of troops assembled for the Bastille Day National Holiday (14 July 1935). He was interred in the Cimetière du Montparnasse, Paris. The inscription on his tombstone is in Hebrew and French. It reads (translated to English):

Here Lies

Lieutenant Colonel Alfred Dreyfus

Officer of the Legion of Honour

9 October 1859 - 12 July 1935

Today, a copy of the statue of Dreyfus holding his broken sword stands at the entrance to the Museum of Jewish Art and History in Paris. The original can be found at Boulevard Raspail, n°116 - 118, at the exit of the Notre-Dame-des-Champs metro station.