In 1777 Murdock entered the engineering firm of Matthew Boulton and James Watt in their Soho works at Birmingham and about two years later was sent to Cornwall to superintend the fitting of Watt's steam engines. At his home in Redruth, Cornwall, he experimented in distilling coal and in 1792 lighted his cottage and offices with coal gas. After returning to Birmingham about 1799, he perfected further practical methods for making, storing, and purifying gas.

Murdock also made important improvements in the steam engine. He was the first to devise an oscillating engine, of which he made a model about 1784; in 1786 he was busy with a steam carriage or road locomotive that was unsuccessful; and in 1799 he invented the long D slide valve. He is generally credited with devising the so-called Sun-and-planet motion, a means of making a steam engine give continuous revolving motion to a shaft provided with a flywheel. Watt, however, patented this motion in 1781. Murdock also experimented with compressed air and in 1803 constructed a steam gun. He retired from business in 1830.