Koirala was a member of the most prominent political family in Nepal. His older brothers both served as prime minister: Matrika Prasad Koirala in 1951–52 and 1953–55 and Bisheshwar Prasad Koirala from 1959 until King Mahendra (Mahendra) overthrew the government in December 1960. Bisheshwar Prasad and Girija Prasad were subsequently imprisoned. After his release in 1967, Girija Prasad went into exile with other leaders of the Nepali Congress Party (NCP) and did not return to Nepal until 1979.

In 1990 Koirala was a leader of the People's Movement (Jana Andolan), which achieved a restoration of democracy in Nepal. He was elected to the parliament in 1991 and served his first term as prime minister from 1991 to 1994. Factional disputes within the NCP brought that government down. In 1995 Koirala won the presidency of the NCP, and he was named prime minister again in April 1998. He headed a minority government until the end of the year, when he formed a coalition. In elections in May 1999, the NCP won an absolute majority, but Koirala's intraparty rival, Krishna Prasad Bhattarai, became prime minister. In March 2000, however, Koirala ousted Bhattarai by withholding support and became prime minister for a third time.

By this time the Maoist insurgency had gathered strength. Koirala sought to deploy the army against it, but this action was opposed by King Birendra, who had succeeded Mahendra in 1972. Beginning in 1996, Maoist rebels waged a bloody insurgency in Nepal. After the murder of the king by Crown Prince Dipendra in June 2001, Koirala was forced to resign. He had been criticized for his failure to prevent the royal massacre, but disputes over his handling of the insurgency as well as ongoing corruption allegations were more immediate reasons for his departure. His successor, Sher Bahadur Deuba, was twice dismissed by the autocratic new king, Gyanendra, who assumed direct power on Feb. 1, 2005. Koirala was under house arrest from that date until the following April. International pressure and another People's Movement forced the king to restore the parliament in April 2006. At that point, Koirala was elected to his fourth term as prime minister. Talks with the Maoist rebels culminated in a comprehensive peace agreement in November 2006.

In a moment of great hope for Nepal, Koirala swore into his cabinet five representatives of the Communist Party of Nepal (Maoist) on April 1, 2007. With the Maoists included in a newly formed interim government and the role of the monarchy suspended, elections were scheduled for a Constituent Assembly that would determine the monarchy's future status. The Maoists, however, began calling for the immediate abolishment of the monarchy as well as for the conduct of the elections under a system of proportional representation that gave them their best chance of success. When these demands were refused, they left the cabinet in September. Koirala then indefinitely postponed the elections, scheduled for November 22. The possibility of renewed war loomed, and Koirala's government was in jeopardy.

When elections were held in April 2008, the Maoists won a majority of the seats. In May more than two centuries of royal rule came to an end as the new assembly voted to declare Nepal a democratic republic. In the elections for prime minister held in August, Maoist leader Pushpa Kamal Dahal, popularly known as Prachanda, won an overwhelming victory, thereby ending Koirala's fourth term as prime minister.