Friedell was the 3rd child of a Jewish silk manufacturer, Moriz Friedmann, and his wife, Karoline (née Eisenberger). After his parents divorced in 1887, Friedell lived with his father. After his father's death in 1891, Friedell lived with his aunt in Frankfurt am Main, where he would attend school, until he was expelled for unruly behaviour two years later. Even at this young age, Friedell was considered a trouble maker and free thinker. He attended several schools in Austria and Germany, until he finally passed his Abitur (exit examination) after four attempts, in Heidelberg in 1899.

In 1897, prior to his graduation, Friedell had enrolled as a guest student at Berlin University, studying German literature, natural sciences and philosophy. It was during this time, that Friedell renounced Judaism and converted to the Lutheran faith. After graduation, he enrolled in Heidelberg University to study under the philosophy historian and follower of Hegel, Kuno Fischer. In 1899, he accepted his inheritance enabling him to live financially independently in Vienna.

From 1900 to 1904, Egon Friedell studied German literature and philosophy in Vienna, at the University of Heidelberg. In 1904, he received his PhD for his dissertation; Novalis als Philosoph. In 1905, he published the article Prejudices in Karl Kraus's journal Fackel, which included the following statement:

: The worst prejudice we acquire during our youth is the idea that life is serious. Children have the right instincts: they know that life is not serious, and treat it as a game...

From 1905 to 1910 Friedell worked as the artistic director of the Vienna cabaret "Fledermaus", named after the Johann Strauss operetta. During this time, Friedell continued to publish essays and one-act plays. His first literary effort was The Paraffin King. The sketch comedy Goethe (written in collaboration with Alfred Polgar) in which he also played the leading role, made him famous in German speaking countries.

In 1910, Friedell was commissioned by publisher Samuel Fischer to write a biography of poet Peter Altenberg. Fischer, who had expected something light, was unsatisfied with Friedell's analysis and critique of culture titled Ecce poeta, and the books was not promoted in any way. Hence, the book was a commercial failure, but served to mark the beginning of Friedell's interest in cultural history.

In 1912, Friedell was performing in cabarets in Berlin, and in 1913 worked for as an actor for director, Max Reinhardt. In Vienna, Friedell worked as the codirector of Intimes Theater. Friedell also continued writing and developed friendships with nearly all of the major German authors of the period. In 1914, suffering from alcoholism and obesity, Friedell was forced to undergo treatment at a sanatorium near Munich. Friedell was as enthusiastic about the beginning of World War I, as were many of his contemporaries, and Friedell volunteered for military service but was rejected for physical reasons.

In 1916, he officially changed his name to Friedell. (He had used Friedländer as a pen name for several of his publications, but had not used his family name Friedmann since his student days.) Friedell published the Judas Tragedy in 1916, and in 1922, he published Quarry — Miscellaneous Opinions and Quotations. In 1924, while working as a critic for the journal Stunde, Friedell was fired as a "traitor", for making satirical remarks.

Between 1919 and 1924, Friedell worked as a journalist and theatre critic for various publishers including the Neues Wiener Journal. He also worked as a dramatic advisor, theatre director and actor for director Max Reinhardt at the Deutsches Theater in Berlin and the Burgtheater in Vienna.

In addition Friedell's film and literary criticism continued to be published in magazines and newspapers, such as Schaubühne, Fackel, and Neuen Wiener Journal. After 1927, health problems prevented any permanent commissions, and he worked as an independent essayist, editor and translator in Vienna. Among the authors Friedell translated were Emerson, Hebbel, Lichtenberg, Carlyle, Hans Christian Andersen, Johann Nestroy, and Macaulay.

Also during the early 1920s, Friedell wrote the three volumes of his Cultural History of the Modern Age, which describes events from the Renaissance to the age of imperialism in an anecdotal format. For instance, Friedell writes; "All the classifications man has ever devised are arbitrary, artificial, and false, but simple reflection also shows that such classifications are useful, indispensable, and above all unavoidable since they accord with an innate aspect of our thinking." In 1925, publisher Hermann Ullstein received the first volume, but was suspicious of the historiography of an actor. Five other publishers subsequently rejected the book. It was finally published by Heinrich Beck in Munich in 1927. The book proved very successful and allowed Friedell to continue his work as an author and has been translated into seven languages.

In 1933, when the National Socialists came to power in Germany, Friedell described the regime as:

: "(in) the realm of the Antichrist. Every trace of nobility, piety, education, reason is persecuted in the most hateful and base manner by a bunch of debased menials".

In 1937, Friedell's works were banned by the National Socialist regime as they did not conform to the theory of history promoted by the NSDAP, and all German and Austrian publishers refused to publish his works. The first volume of Friedell's A Cultural History of Antiquity, which he failed to complete, was published by Helikon in Zurich.

On the occasion of the Anschluss of Austria, anti-semitism was rampant, Jewish men and women were being beaten in the streets and their businesses and synagogues ransacked or destroyed. Friedell, knowing that he could be arrested by the Gestapo, began to contemplate ending his own life. Friedell told his close friend, Ödön von Horváth, in a letter written on 11 March: "I am always ready to leave, in every sense".

On 16 March 1938, at about 22:00, two SA men arrived at Friedell's house to arrest him. While they were still arguing with his housekeeper, Friedell committed suicide by jumping out of the window. Before leaping, he warned pedestrians walking on the sideway where he hit by shouting "Watch out! Get out of the way!".

Friedell, of whom Hilde Spiel said "in him, the exhilarating fiction of the homo universalis rose once again", was interred in the Zentralfriedhof cemetery in Vienna.