Muḥammad ʿAlī's ethnic background is unknown, though he may have been an Albanian and was certainly a Muslim and an Ottoman (Ottoman Empire) subject. His father, Ibrahim Agha, the commander of a small provincial military force that was maintained by the governor of Kavala, died when Muḥammad ʿAlī was a boy, and he was brought up by the governor. At 18 he was married to one of the governor's relatives, who became the mother of five of Muḥammad ʿAlī's 95 children. He became involved in the tobacco trade, an experience that may account for his later commercial interests.

In 1798 Egypt, at that time a semiautonomous province of the Ottoman Empire, was occupied by a French force under Napoleon (Napoleon I) Bonaparte. Muḥammad ʿAlī arrived there in 1801 as second in command of a 300-man Albanian regiment sent by the Ottoman government to oust the French from Egypt. With great political skill, he managed by 1805 to be named the wālī, the Ottoman sultan's viceroy in Egypt, with the rank of pasha.

Nowhere in the Ottoman Empire was there greater opportunity for a total restructuring of society than in Egypt. The three-year French occupation (1798–1801) had disrupted the country's traditional political and economic structure. Continuing the task begun by the French, Muḥammad ʿAlī put an end to Egypt's traditional society. He eliminated the Mamlūks (Mamlūk), the former ruling oligarchy, expropriated the old landholding classes, turned the religious class into pensioners of the government, restricted the activities of the native merchant and artisan groups, neutralized the Bedouins (Bedouin), and crushed all movements of rebellion among the peasants. The task of rebuilding Egypt along modern lines now lay before him.

But, though Muḥammad ʿAlī had considerable native intelligence and great personal charm, he was a man of limited knowledge and narrow horizons. He proved insensitive to the possibilities open to him and governed generally according to Ottoman principles. No group within Egyptian society was capable of forcing fundamental changes upon him; elements that might have served as the instruments of change had been crushed at the outset of his regime. Neither was there an ideology capable of bringing together the ruler and the ruled in a great national effort. Finally, Muḥammad ʿAlī had to devote much of his effort to resisting attempts by his Ottoman overlord to remove him from office. His policies were designed more to entrench himself and his family in Egypt as its hereditary rulers than to create a new society.

To strengthen his position within Egypt and to increase his revenues, Muḥammad ʿAlī instituted sweeping changes. By 1815 most of Egypt's agricultural land had been converted into state land, and profits from agriculture became available to the ruler. He improved Egypt's irrigation system, on which its agriculture depended; he introduced new crops, such as cotton, which promised high cash returns; and he reorganized the administrative structure of the government to ensure strict control of the economy. He also attempted to construct a modern industrial system to process Egypt's raw materials. Disbanding his mercenary army, he created a fleet and an army of Egyptians conscripted from the peasant class but commanded by Turks and others recruited from outside Egypt. To supply services for his armed forces, he created Western-style schools to train doctors, engineers, veterinarians, and other specialists. He also began sending educational missions to European countries for training in modern techniques.

His industrial experiments failed, largely because Egypt lacked sources of power, a native managerial class, and a trained working class. Even the agricultural sector declined ultimately because of administrative mismanagement, excessive taxation, military conscription of the peasantry, and his monopolization of trade. By the mid-1830s Muḥammad ʿAlī's policy of turning Egypt into a massive plantation for his own benefit had reached a point of diminishing returns. Furthermore, his financial requirements had greatly increased because of his military campaigns.

Muḥammad ʿAlī initially supported the Ottoman sultan in suppressing rebellion both in Arabia and in Greece, and he also invaded the Nilotic Sudan (Sudan, The) in search of recruits for his army and gold for his treasury. Victorious in all three campaigns, until European intervention in Greece caused the destruction of his fleet at the Battle of Navarino (Navarino, Battle of) in 1827, Muḥammad ʿAlī felt that he was strong enough to challenge the sultan. His first war against the sultan (1831–33) gained him control of Syria as far north as Adana. In the second war (1838–41) the decisive defeat of Ottoman troops at the Battle of Nizip (Nizip, Battle of) (1839) and the desertion of the Ottoman fleet to Muḥammad ʿAlī led to intervention by the European powers. In July 1840, Great Britain, Russia, Austria, and Prussia agreed to end Egyptian rule in Syria, shattering Muḥammad ʿAlī's hopes for greater independence from the Ottoman Empire. In 1841 he and his family were granted the hereditary right to rule Egypt and the Sudan, but his power was still subjected to restraints, and the sultan's suzerain rights remained intact.

In the late 1840s, owing to his failing lucidity, Muḥammad ʿAlī retired from office. In 1848, rule was officially transferred to Muḥammad ʿAlī's son Ibrahim (Ibrahim Pasha), who died shortly thereafter; Muḥammad ʿAlī himself died in the following year. Although many of his reforms and institutions were abandoned—some before his death—he is nevertheless hailed as having cleared the path for the creation of an independent Egyptian state.