Karamanlis was the nephew of Konstantinos Karamanlis (Karamanlis, Konstantinos), who, as government minister, prime minister, and president, had shaped Greek politics for nearly half a century. The younger Karamanlis started his political activities in the New Democracy Party (New Democracy) (ND), which his uncle had founded in 1974. Although Karamanlis held high positions within the party's youth and student organizations between 1974 and 1979 and served in the navy (1977–79), his political career remained unremarkable as he focused on his studies. He earned a law degree at Athens University (1979) and later studied economics at the American College of Greece's Deree College. From 1980 to 1984 he attended Tufts University in Medford, Massachusetts, where he received a master's degree in political science and economics and a Ph.D. in international relations. Karamanlis subsequently returned to Greece to practice law and teach at Deree. He was elected to the parliament in June 1989, and in 1993 he became a member of the ND central committee and political council.

In 1997 Karamanlis was elected party president, and as ND leader he forged relative unity in a party that was traditionally riddled by factionalism between its more traditionalist-conservative and liberal wings. He also persuaded several politicians who had quit the party to return. On March 7, 2004, the ND won the general elections, ending 11 years of centre-left rule under the Panhellenic Socialist Movement, and Karamanlis became the youngest prime minister in recent Greek history. Once in office, he undertook a reform program that was especially focused on the economy. Although there were widespread protests and strikes against what many perceived as neoliberal policies, support for his changes increased as the economy improved. In August 2007 Karamanlis called for early elections. Soon after, however, his government drew widespread criticism for its handling of deadly forest fires that swept the country. In the September 2007 elections, the ND lost seats but managed to hold a slim majority in parliament, returning Karamanlis to office for a second term.