One of the most influential forces in the development of the Swedish cinema, Sjöström began his career as a professional actor in 1896, as a member of Ernst Ahlbom's traveling theater company. He worked as both an actor and director for a number of Swedish companies during the next 16 years. In 1911 he formed his own company along with Einar Froberg, and, in 1913, was offered a film contract by Svenksa Bio.

Throughout his career, reviewers of Sjöström's performances seldom failed to mention his "distinctive, monumental face, as rich and alive as any landscape." Likewise, Sjöström's films as a director, which he often wrote and starred in, gained their greatest acclaim for his expressive use of landscape and "natural scenery." Sjöström's first great success came during the years 1917-1921, which saw his four film adaptations of novels by Swedish Nobel laureate Selma Lagerlof (three of which he also starred in), and the film that many consider his directorial masterpiece, Thy Soul Shall Bear Witness (1920).

Although Sjöström's Swedish films were generally considered too downbeat for American audiences (a trade magazine warned theater owners that they would have a better time attending their own funerals than a screening of Thy Soul Shall Bear Witness), the enthusiastic reviews they received for "artistic excellence" and "sheer pictorial power" made Sjöström, along with the likes of Ernst Lubitsch, Erich von Stroheim, and Sjöström's colleague Mauritz Stiller, a prime candidate for American import.

In 1923, Svensk Filmindustri sent Sjöström on a "study trip to America," retaining the Scandinavian distribution rights to the films he would direct for Samuel Goldwyn. During his seven-year residence in Hollywood (1923-1930), "Seastrom," as he was billed in the US, directed top stars of the day such as Lillian Gish (The Scarlet Letter, 1926, The Wind, 1928), Greta Garbo (The Divine Woman, 1927), Lon Chaney and Edward G. Robinson. In a 1924 interview, Charlie Chaplin called him "the greatest director in the world."

Sjöström made his reputation as a master of silent films by virtue of his expressive imagery and minimal use of titles. With the advent of talkies, however, his style of filmmaking was quickly outdated. He returned to Sweden in 1930 and resumed his career on the stage, although he continued to appear frequently in the films of other directors, concluding with his most memorable role, at the age of 78, as Professor Isak Berg in Ingmar Bergman's Wild Strawberries (1957).