Early in his career Wassermann, whose father was a merchant, wrote for the satirical weekly Simplicissmus in Munich. He later moved to Vienna before settling in Altaussee. He achieved success with his novel Die Juden von Zirndorf (1897; “The Jews of Zirndorf”; Eng. trans. The Dark Pilgrimage), a study of Jews longing for the messiah. He established his reputation with Caspar Hauser (1908), the fact-based story of a strange boy, apparently unfamiliar with the ordinary world, who was found in Nürnberg in 1828 and whose identity and subsequent murder or suicide remained a mystery. Wassermann uses the story to castigate bourgeois numbness of heart and lack of imagination in dealing with anything out of the ordinary. In Christian Wahnschaffe (1919; The World's Illusion), one of his most popular works, a millionaire's son, after experiencing all that high life, love, travel, and art have to offer, dedicates himself to the service of humanity.

Perhaps Wassermann's most enduring work is Der Fall Maurizius (1928; The Maurizius Case), which treats the theme of justice with the carefully plotted suspense of a detective story. It introduced the character Etzel Andergast, whose questioning of the judgment of his cold-hearted jurist father and whose own detective work eventually prove the innocence of a man his father had condemned. Etzel became a symbol of post-World War I German youth by rejecting the authority of the past and finding his own truth by trial-and-error, doggedly following elusive clues. This work was extended into a trilogy including Etzel Andergast (1931) and Joseph Kerkhovens dritte Existenz (1934; Kerkhoven's Third Existence). Mein Weg als Deutscher und Jude (1921; My Life as German and Jew) is Wassermann's autobiography.