A tobacco worker and trade unionist, Stauning was elected secretary of the Social Democratic Party in 1898 and entered the Folketing (lower house of Parliament) in 1906. After becoming party chairman in 1910, he served from 1916 to 1920 in the Radical-Liberal ministry of Carl Theodor Zahle, which sponsored reforms of the judicial and landholding systems and of local governments.

The monetary reforms of Stauning's first administration aggravated depressed conditions in industry and agriculture and led to his defeat in the 1926 elections. Returning to office in 1929 to head a Social Democratic–Radical-Liberal coalition, he soon gained support for measures reducing military expenditures and reforming the nation's criminal code. In 1931 he achieved a compromise with the opposition parties that provided relief to farmers and the unemployed through increased taxation, the first of a series of “compromise agreements.”

After leading the Social Democratic Party to its greatest electoral victory in 1935, Stauning benefitted from improving economic conditions in the late 1930s. He failed in 1939, however, to gain a constitutional reform to create a unicameral parliamentary system. Although his government signed a nonaggression treaty with Germany in May 1939, German forces occupied Denmark the following year. He remained as head of a coalition government under German occupation until his death.