Ferguson's experience in entertainment began as a drummer in a rock band called "Exposure." He then joined a punk band called "The Bastards from Hell." The band, later renamed "Dreamboys," and fronted by vocalist Peter Capaldi, performed regularly in Glasgow from 1980 to 1982. Ferguson credits Capaldi for inspiring him to try comedy.

After a nerve-wracking, knee-knocking first appearance, he decided to create a character that was a "parody of all the über-patriotic native folk singers who seemed to infect every public performance in Scotland." The character, "Bing Hitler" (actually coined by Capaldi as Ferguson started with the monogram of "Nico Fulton" but admittedly later stole the name for his "own nefarious ends"), premiered in Glasgow, and subsequently became a hit at the 1986 Edinburgh Festival Fringe. A recording of his stage act as Bing Hitler was made at Glasgow's Tron Theatre and released in the 1980s; a Bing Hitler monologue ("A Lecture for Burns Night") appears on the compilation cassette Honey at the Core. Ferguson also toured the UK during the late '80s under his own name as a support act to Harry Enfield.

Ferguson made his television debut in The Craig Ferguson Show, a one-off comedy pilot for Granada Television, which co-starred Paul Whitehouse and Helen Atkinson-Wood. This was broadcast throughout the UK on 4 March 1990, but was not made into a full series.

He has also found success in musical theatre. Beginning in 1991, he appeared on stage as Brad Majors in the London production of The Rocky Horror Show, alongside Anthony Stewart Head, who was playing Dr. Frank-N-Furter at the time. The same year, he appeared again at the Edinburgh Fringe, as Oscar Madison in The Odd Couple, opposite Gerard Kelly as Felix and Kate Anthony as Gwendolin Pidgeon, who is now much better know as Aunty Pam in Coronation Street; The play, which was relocated to 1990s Glasgow, later toured Scotland. In 1994, Ferguson played "Father MacLean" in the highly controversial production of Bad Boy Johnny and the Prophets of Doom at the Union Chapel in London. Because it was performed in a practising church, the production was closed down after just ten performances.

After enjoying success at the Edinburgh Festival, Ferguson made further forays into television with appearances on Red Dwarf, STV's Hogmanay Show, his own show 2000 Not Out, and the 1993 One Foot in the Grave Christmas special One Foot in the Algarve.

In 1993, Ferguson presented his own series on Scottish archaeology for Scottish Television entitled Dirt Detective. He traveled throughout the country examining archaeological history, including Skara Brae and Paisley Abbey.

After cancellation of his show The Ferguson Theory, Ferguson moved to Los Angeles in 1994. His first U.S. role was as baker Logan McDonough on the short-lived 1995 ABC comedy Maybe This Time, which starred Betty White and Marie Osmond.

His breakthrough in the U.S. came when he was cast as the title character's boss, Mr. Wick, on The Drew Carey Show, a role that he played from 1996 to 2003. He played the role with an over-the-top posh English accent "to make up for generations of English actors doing crap Scottish accents." (At the end of one episode, though, Ferguson broke the fourth wall and began talking to the audience at home in his regular Scottish accent.) His character was memorable for his unique methods of laying employees off, almost always 'firing Johnson', the most common last name of the to-be-fired workers. Even after leaving the show in 2003, he remained a recurring character on the series for the last two seasons, and was part of the 2-part series finale in 2004.

During production of The Drew Carey Show, Ferguson devoted his off-time as a cast member to writing, working in his trailer on set in-between shooting his scenes. He wrote and starred in three films: The Big Tease, Saving Grace, and I'll Be There, which he also directed and for which he won the Audience Award for Best Film at the Aspen, Dallas and Valencia film festivals. He was named Best New Director at the Napa Valley Film Festival. These were among other scripts which "in the great tradition of the movie business, about half a dozen that I got paid a fortune for but never got made."His other acting credits in films include Niagara Motel, Lenny the Wonder Dog, Lemony Snicket's A Series of Unfortunate Events, Chain of Fools, Born Romantic, The Ugly Truth, How to Train Your Dragon, Kick-Ass, and Totally Framed.