Nandy was born in a Bengali family at Bhagalpur, Bihar, in 1937. He is the eldest of three sons of Satish Chandra Nandy and Prafulla Nalini Nandy, and brother of Pritish Nandy. Later, his family moved to Calcutta. Nandy's mother was a teacher at La Martiniere School, Calcutta and subsequently became the school's first Indian vice principal. When he was 10, British India was partitioned into two sovereign countries - India and Pakistan. He witnessed the time of conflicts and atrocities that followed.

Nandy quit medical college before joining Hislop College, Nagpur to study social sciences. Later he took a Master's degree in sociology. However, his academic interest tended increasingly towards clinical psychology and he did his Ph.D. in psychology at Gujarat University, Ahmedabad.

Nandy joined the Centre for the Study of Developing Societies (CSDS), Delhi, as a young faculty member. While working there, he developed his own methodology by integrating clinical psychology and sociology. Meanwhile, he was invited by a number of universities and research institutions abroad to carry out research and to give them lectures. He served as the Director of CSDS between 1992 and 1997. He also serves on the Editorial Collective of Public Culture, a reviewed journal published by Duke University Press.

Nandy has coauthored a number of human rights reports and is active in movements for peace, alternative sciences and technologies, and cultural survival. He is a member of the Executive Councils of the World Futures Studies Federation, the Commonwealth Human Rights Initiative, the International Network for Cultural Alternatives to Development, and the People's Union for Civil Liberties. Nandy has been a Woodrow Wilson Fellow at the Wilson Center, Washington, D.C., a Charles Wallace Fellow at the University of Hull, and a Fellow of the Institute for Advanced Studies in Humanities, University of Edinburgh. He held the first UNESCO Chair at the Center for European Studies, University of Trier, in 1994. In 2006 he became the National Fellow of the Indian Council of Social Science Research.

Professor Nandy is an intellectual who identifies and explores numerous and diverse problems. He has written extensively in last two decades. His 1983 book, titled ‘The Intimate Enemy: Loss and Recovery of Self Under Colonialism’, talked about the psychological problems posed at a personal level by colonialism, for both colonizer and colonized. Nandy argues that the understanding of self is intertwined with those of race, class, and religion under colonialism, and that the Gandhian movement can be understood in part as an attempt to transcend a strong tendency of educated Indians to articulate political striving for independence in European terms. Through his prolific writing and other activities supported by his belief in non-violence, Professor Nandy has offered penetrating analysis from different angles of a wide range of problems such as political disputes and racial conflicts, and has made suggestions about how human beings can exist together, and together globally, irrespective of national boundaries.

Fukuoka Asian Culture Prize in 2007