Born into an old but poor noble family, Godoy followed his brother to Madrid in 1784 and, like him, entered the royal bodyguard. He attracted the attention of Maria Luisa of Parma, wife of the heir to the throne, and soon became her lover. When her husband ascended the throne in 1788 as Charles IV, the domineering Maria Luisa persuaded Charles to advance Godoy in rank and power, and by 1792 he became field marshal, first secretary of state, and duque de Alcudia. From then on Godoy's hold over the royal family, buttressed by his pliability, guile, and ingratiating nature, rarely, if ever, weakened.

When Godoy was named prime minister in 1792, his first undertaking was to try to save the French king Louis XVI from the guillotine. When that failed, war broke out between France and Spain (1793). Initial Spanish successes were followed by losses, and Godoy negotiated the Peace of Basel (1795), for which he was given the title príncipe de la Paz (prince of the Peace) by his grateful sovereign.

To strengthen ties with France, Godoy negotiated an alliance against England in the Treaty of San Ildefonso (1796). War was soon declared, and Spain suffered a major naval defeat off Cape St. Vincent. France proved an unfaithful ally and showed little scruple in betraying Spanish interests. In 1798 Godoy was removed from office, though in temporary retirement he continued to enjoy royal favour and wield great influence. When Godoy was reinstated in 1801, the war with England still raged and Napoleon was dictator of France. Godoy yielded to French pressure and collaborated in an invasion of Portugal, England's ally, commanding Spanish forces in the three-week War of the Oranges (Oranges, War of the). After Portuguese capitulation, Napoleon sacrificed Spanish interests in the Treaty of Amiens, signed with England in 1802. An opposition party then began to form against Godoy around the heir apparent, Ferdinand (later Ferdinand VII), spurred by growing discontent over the conduct of national affairs.

When war between France and England flared anew in 1803, Godoy managed to maintain neutrality until December 1804, when he guided Spain into joining France once again in declaring war on England. Ten months later Spanish naval power was utterly destroyed in the Battle of Trafalgar (Trafalgar, Battle of). Relations with Napoleon gradually improved, and in the secret Treaty of Fontainebleau (1807), in which Spain and France agreed to the partition of Portugal, Godoy was offered the kingdom of Algarve, in southern Portugal. Several months later, however, Spain learned that France planned to seize certain of its northern provinces. The court, seeking to establish a government in exile, attempted to flee the country, but at Aranjuez a mob, loyal to Ferdinand, nearly killed Godoy and forced Charles IV to abdicate in his son's behalf. Godoy was then arrested by Ferdinand, and in May 1808 all three—Godoy, Ferdinand, and Charles—were enticed across the border into France, where they became prisoners of Napoleon. Godoy stayed with Charles in Rome until the former king's death in 1819. He then lived in obscurity in Paris on a modest French royal pension until 1847, when Isabella II of Spain restored his titles and returned some of his confiscated estates.