Ellis, son of Edward Peppen Ellis and Susannah Mary Wheatley, was born in Croydon, then a small town south of London. His father was a sea captain, his mother the daughter of a sea captain, and many other relatives lived on or near the sea. At seven years of age, his father took him on one of his voyages, during which he called at Sydney, Callao and Antwerp. After his return, Ellis went to a fairly good school, the French and German College near Wimbledon, and afterward attended a school in Mitcham.

In April 1875, Ellis left London on his father's ship for Australia, and soon after his arrival in Sydney, he obtained a position as a master at a private school. It was discovered that he had had no training for this position, and so he became a tutor for a family living a few miles from Carcoar. He spent a year there, doing a lot of reading, and then obtained a position as a master at a grammar school in Grafton. The headmaster had died and Ellis carried on the school for that year, but was too young and inexperienced to do so successfully.

At the end of the year, he returned to Sydney and, after three months' training, was given charge of two government part-time elementary schools, one at Sparkes Creek and the other at Junction Creek. He lived at the school house on Sparkes Creek for a year, which turned out to be the most eventful year of his life up to that point, as he called it afterwards. In his own words, "In Australia, I gained health of body, I attained peace of soul, my life task was revealed to me, I was able to decide on a professional vocation, I became an artist in literature . . . these five points covered the whole activity of my life in the world. Some of them I should doubtless have reached without the aid of the Australian environment, scarcely all, and most of them I could never have achieved so completely if chance had not cast me into the solitude of the Liverpool Range."

Ellis returned to England in April 1879. He had decided to take up the study of sex, and felt his first step must be to qualify as a medical man. He studied at St Thomas's Hospital Medical School, but never had a regular medical practice. His training was aided by a small legacy and also income earned from editing works in the Mermaid Series of lesser known Elizabethan and Jacobean drama. He joined The Fellowship of the New Life in 1883, meeting other social reformers Edward Carpenter and George Bernard Shaw.

The first English medical text book on homosexuality is the 1897 English translation of Ellis' book Sexual Inversion, co-authored with John Addington Symonds and originally published in German in 1896. It describes the sexual relations of homosexual men and boys, something that Ellis did not consider to be a disease, immoral, or a crime. The work assumes that same-sex love transcended age-taboos as well as gender-taboos, as seven of the twenty-one examples are of intergenerational relationships. A bookseller was prosecuted in 1897 for stocking Ellis' book. Although the term homosexual itself is attributed to Ellis, he wrote in 1897, “‘homosexual’ is a barbarously hybrid word, and I claim no responsibility for it,” Online Etymology Dictionary at www.etymonline.com the hybridity in question being the word's mix of Greek and Latin roots. Other psychologically important concepts developed by Ellis include autoerotism and narcissism, both of which were later taken up by Sigmund Freud.

Ellis also studied what we call today transgender phenomena. Alongside Magnus Hirschfeld, Havelock Ellis is regarded as the other major figure in the history of sexology responsible for establishing a new category that was separate and distinct from homosexuality. Aware of Hirschfeld's studies of transvestism, but unhappy with Hirschfeld terminology, in 1913 Ellis proposed the term sexo-aesthetic inversion to describe the phenomenon. Still unhappy with this, in 1920 he coined the term eonism, which he derived from the name of a historical figure, Chevalier d'Eon, just like sadism and masochism had been derived. Ellis explained:

:"On the psychic side, as I view it, the Eonist is embodying, in an extreme

:degree, the aesthetic attitude of imitation of, and identification with,

:the admired object. It is normal for a man to identify himself with the

:woman he loves. The Eonist carries that identification too far, stimulated by a

:sensitive and feminine element in himself which is associated with a rather

:defective virile sexuality on what may be a neurotic basis."

Ellis found eonism to be "a remarkably common anomaly", and "next in frequency to homosexuality among sexual deviations", and categorized it as "among the transitional or intermediate forms of sexuality." In Freudian tradition, Ellist also postulated that a "too close attachment to the mother" may encourage eonism, but also considered that it "probably invokes some defective endocrine balance".

Nowadays, his notion of eonism has been abandoned in favor of autogynephilia, a term with a simpler definition coined by Ray Blanchard.

In November 1891, at the age of 32, and still a virgin, Ellis married the English writer and proponent of women's rights, Edith Lees (none of his four sisters ever married). From the beginning, their marriage was unconventional; Edith Lees was openly lesbian, and at the end of the honeymoon, Ellis went back to his bachelor rooms in Paddington, while she lived at Fellowship House. Their 'open marriage' was the central subject in Ellis's autobiography, My Life.

According to Ellis in My Life, his friends were much amused at his being considered an expert on sex, what with the fact that he suffered from impotence until the age of 60, when he discovered that he was able to become aroused by the sight of a woman urinating. Ellis named the interest in urination "Undinism" but it is now more commonly called urolagnia.

Ellis was a supporter of eugenics. He served as vice-president to the Eugenics Education Society and wrote on the subject among others in The Task of Social Hygiene.