Stephenson was the son of a mechanic who operated a Newcomen atmospheric-steam engine that was used to pump out a coal mine at Newcastle upon Tyne. The boy went to work at an early age and without formal schooling; by age 19 he was operating a Newcomen engine. His curiosity aroused by the Napoleonic war news, he enrolled in night school and learned to read and write. He soon married and, in order to earn extra income, learned to repair shoes, fix clocks, and cut clothes for miners' wives, getting a mechanic friend, the future Sir William Fairbairn (Fairbairn, Sir William, 1st Baronet), to take over his engine part-time. His genius with steam engines, however, presently won him the post of engine wright (chief mechanic) at Killingworth colliery.

Stephenson's first wife died, leaving him with a young son, Robert, whom he sent to a Newcastle school to learn mathematics; every night when the boy came home, father and son went over the homework together, both learning. In 1813 George Stephenson visited a neighbouring colliery to examine a “steam boiler on wheels” constructed by John Blenkinsop to haul coal out of the mines. In the belief that the heavy contraption could not gain traction on smooth wooden rails, Blenkinsop had given it a ratchet wheel running on a cogged third rail, an arrangement that created frequent breakdowns. Stephenson thought he could do better, and, after conferring with Lord Ravensworth, the principal owner of Killingworth, he built the Blucher, an engine that drew eight loaded wagons carrying 30 tons of coal at 4 miles (6 km) per hour. Not satisfied, he sought to improve his locomotive's power and introduced the “steam blast,” by which exhaust steam was redirected up the chimney, pulling air after it and increasing the draft. The new design made the locomotive truly practical.

Over the next few years, Stephenson built several locomotives for Killingworth and other collieries and gained a measure of fame by inventing a mine-safety lamp. In 1821 he heard of a project for a railroad, employing draft horses, to be built from Stockton to Darlington to facilitate exploitation of a rich vein of coal. At Darlington he interviewed the promoter, Edward Pease, and so impressed him that Pease commissioned him to build a steam locomotive for the line. On Sept. 27, 1825, railroad transportation was born when the first public passenger train, pulled by Stephenson's Active (later renamed Locomotion), ran from Darlington to Stockton, carrying 450 persons at 15 miles (24 km) per hour. Liverpool and Manchester interests called him in to build a 40-mile (64-kilometre) railroad line to connect the two cities. To survey and construct the line, Stephenson had to outwit the violent hostility of farmers and landlords who feared, among other things, that the railroad would supplant horse-drawn transportation and shut off the market for oats.