Born to a Jewish family in Tiraspol (part of Imperial Russia at the time), he was the son of Alexandru Grünberg, a miller. In 1932, he joined the local section of the Union of Communist Youth, a wing of the Romanian Communist Party (PCR or PCdR); in 1933, due to his political activities, he was arrested and held for two weeks by the secret police, Siguranţa Statului. Later in the 1930s, as associates of General Secretary Vitali Holostenco, he and Vasile Luca were elected to the internal Politburo (which was doubled by a controlling body inside the Soviet Union). In 1937, he joined the ranks of the Romanian Communist Party. He did his military service in the Signal Regiment of Iaşi in 1937 - 39, being discharged with the rank of corporal. He subsequently worked for the telephone exchange in Chişinău.

In December 1940, following the onset of the Soviet occupation of Bessarabia, Grünberg became a Soviet citizen, joined the NKVD, and trained as a spy in Cernăuţi. He was sent undercover into Romania on May 26, 1941, carrying papers with the name Vasile Ştefănescu, and reporting on Romanian Army movements in preparation for Operation Barbarossa (the invasion of the Soviet Union by Nazi Germany, in which Romanian troops, under the command of Marshal Ion Antonescu, participated. He was apprehended by Romanian border guards after just two hours (according to subsequent reports, he was given away by the fact that he could not express himself in Romanian; his case was investigated June 6 - 12 by the Special Investigations Service's Lieutenant Colonel Emil Velciu; Nicolschi confessed he had been recruited into Soviet intelligence by NKVD Captain Andreev. After a short trial, he was sentenced to life imprisonment and hard labor on August 7, 1941. He was sent to prison in Ploieşti, and then Aiud, where other Soviet spies, such as Vladimir Gribici, and Afanasie Şişman, were also held. It was during the time that he began using his adopted name, and passed himself off as an ethnic Russian.

He was set free by the Red Army occupying Romania on August 28, 1944, and benefited from a general amnesty. In October, Nicolschi was incorporated into the police force, becoming an inspector, while, in parallel, he rose rapidly through the ranks of the PCR. In May 1945, just after the end of World War II in Europe, he was present in Moscow, where he was entrusted with the task of transporting Ion Antonescu and his group of collaborators (Mihai Antonescu, Constantin Pantazi, Pichi Vasiliu and others, all of whom had been captured by the Soviets) from Lubyanka back to Romania. On April 9, 1946, it was he who signed the release papers when these prisoners were brought back to Romania by Soviet Lieutenant Colonel Rodin to face trial.

Under the Petru Groza Communist controlled government, Nicolschi was appointed head of the Detective Corps. At the time, Nicolschi, together with Minister of the Interior Teohari Georgescu, was contacted by Nicolae Petraşcu, a fascist activist who oversaw the main interior branch of the Iron Guard (claiming to represent Horia Sima's exiled leadership of the movement). Petraşcu, who had just been arrested, offered his subordinates' support for the National Democratic Front, which was an alliance controlled by the Communists (in the process, he avoided a direct mention of the Communist Party, and later carried on parallel negotiations with the opposition National Peasants' Party, PNŢ). Georgescu and Nicolschi agreed to the deal, and allowed Iron Guard's affiliates (the Legionaries) to emerge from the underground, awarding them identity papers and employment on the condition that they disarmed themselves. Georgescu was persuaded by Nicolschi to let Petraşcu go free; the minister later confessed that this was done on suspicion that the Iron Guard would otherwise provide support for the National Peasantist leaders: "The PNŢ's attempts, successful up to a certain extent, of attracting Legionaries into their party, [thus] giving them a legal possibility to act against the regime".

According to Georgescu, as a direct result of the understanding, as much as 800 Iron Guard affiliates applied for recognition, including a number of people who had "returned from Germany after August 23, 1944, having diversion as their [original] purpose". In autumn 1945, the two Communist representatives intervened to have sizable groups of Iron Guard members set free from various labor camps, while Petraşcu was awarded a degree of liberty in resuming political contacts. On Georgescu's orders, Nicolschi drew up a list of Legionaries who had been imprisoned for lesser crimes under Ion Antonescu's regime, a document which formed the basis of pardons. Most of the newly released persons were subsequently kept under surveillance by Nicolschi and his Detective Corps. An unknown number of Petraşcu's supporters consequently joined the Communist Party, as part of a large wave of new members.

Nicolschi was later assigned the post of General Inspector of the traditional secret police, Siguranţa Statului, where he and Serghei Nicolau led a Mobile Brigade, entrusted with silencing political opposition. The unit, which was to become an embryo for the Securitate, comprised an active cell of MGB envoys. At the time, Nicolschi himself rose to the rank of Colonel in the MGB.

With Alexandru Drăghici, Nicolschi ordered a wave of arbitrary arrests in 1946 - 1947, which, according to some sources, came to mark the lives of as many as 300,000 people. He also played a role in the killing of Ştefan Foriş, who, after being toppled from his position as General Secretary, had been kept in seclusion; it was Nicolschi who ordered Foriş' mother to be drowned in the Crişul Repede. In 1967, he indicated that one of his subordinates, a certain "comrade (Gavril) Birtaş" of the Oradea section, had taken the initiative:

"Comrade Birtaş had received the indication to talk to her and get her to return to Oradea and admit herself into an old people's home. Details of how Comrade Birtaş has accomplished the mission are not known to me."

In early 1948, after the PCR forced King Mihai I to abdicate, Nicolschi escorted the latter out of the country and as far as Vienna. During May, Nicolschi, together with Marin Jianu, engineered a series of trials for sabotage, which notably implicated the industrialists Radu Xenopol and Anton Dumitru, who were accused of having destroyed their own enterprises as a means to resist nationalization.

After the founding of the Securitate on August 30 of that year, Lieutenant General Gheorghe Pintilie (Pantelei Bodnarenko) became the first Director of this organization. The positions of Deputy Directors went to two Major Generals Nicolschi and Vladimir Mazuru, both of whom were also Soviet officers; nobody could be appointed to the Securitate's leadership without their approval. Together, they oversaw the creation of the massive Communist Romanian penal system and communist terror apparatus, starting in February 1950. As historian Vladimir Tismăneanu argues, this was made possible by the Soviet agents and their relations with the group around emerging Communist leader Gheorghe Gheorghiu-Dej: "if one does not grasp the role of political thugs such as the Soviet spies Pintilie Bodnarenko (Pantiuşa) and Alexandru Nikolski in the exercise of terror in Romania during the most horrible Stalinist period, and their personal connections with Gheorghe Gheorghiu-Dej and members of his entourage, it is difficult to understand the origins and the role of the Securitate".

Upon introducing the new Securitate policies, Nicolschi presented a series of ideological imperatives, resumed in sentences such as:

"The rust of bureaucratism has begun to gnaw at us [that is, the Securitate]. Our apparatus cannot be gnawed at, but this is an aspect [of things turned wrong]."

Involved in the interrogation of Lucreţiu Pătrăşcanu, he ensured Soviet intervention in the proceedings, and was personally responsible for the arrest of Lena Constante. He also played a leading role in the brainwashing experiment provoked by the Communist authorities in 1949 - 1952 at the Piteşti prison; he encouraged Eugen Ţurcanu to carry out the task and carried out regular inspections, during which he would ignore evidence of torture. In the inquiry preceding the show trial for sabotage at the Danube - Black Sea Canal, Nicolschi led a squad of torturers that was entrusted with obtaining forced confessions from Gheorghe Crăciun and other employees.

As early as 1949, Nicolschi was arguably the first Securitate senior officer to become known for his brutality outside the Eastern bloc. This came after a Romanian refugee to France, Adriana Georgescu Cosmovici, recounted the manner in which, four years earlier, she had been tortured by a team of which Nicolschi was a member, and indicated that the latter had been one of the three to have threatened her with guns.

Although an associate of Ana Pauker's "Muscovite wing", Nicolschi maintained links with Gheorghe Gheorghiu-Dej, and relied on his NKVD - MGB credentials to survive political turmoil caused by the fall of Pauker, Vasile Luca, and Minister of the Interior Teohari Georgescu. Pauker was officially accused, among other things, of having welcomed the Iron Guard into the Party, although her degree of involvement in the deal remains disputed (while Nicolschi is credited with having initiated it, it was also proposed that his Soviet superiors had played a part in the decision).

He apparently rallied with Gheorghiu-Dej, and, despite the fact that he was still a Soviet citizen, he was decorated with the high distinction Steaua Republicii Populare Române. In 1953, he became a General Secretary in the Interior Ministry. At around that time, his suspicion towards Gheorghiu-Dej allegedly led him to plant microphones in the latter's office.

In 1961, after Gheorghiu-Dej began adopting anti-Soviet themes in his discourse, Nicolschi, promoted to Lieutenant General, was sidelined and forced into retirement, without being denied the luxuries reserved for the nomenklatura. He lived through the Nicolae Ceauşescu years, and died in Bucharest, two years after the Romanian Revolution, as the result of a heart attack. This happened on the very same day he was presented with a subpoena from the Prosecutor General, who had received a formal notification from the victims' families and the Association of Former Political Prisoners (Nicolschi was scheduled for hearings on April 17, 1992).

Alongside Pintilie and Mazuru, Nicolschi features prominently in theories that the early Securitate was controlled by ethnic minorities (as notably voiced by the press of the ultra-nationalist Greater Romania Party). Referring to this, British historian Dennis Deletant claims that of the total 60 leaders of the Securitate Directorate, 38 were ethnically Romanian, while 22 were divided between 5 other communities (but in this statistic, Deletant counts Nicolschi as an ethnic Russian). He concluded that "the numbers drawn from ethnic minorities, although disproportionate, do not appear to be excessive". Deletant also is of the opinion that, while there is indication that the ethnic origin of top officials was obscured, "there is no evidence to suggest the 'Romanianisation' of officers of other ethnic origins".