Born in Zaragoza, Olid grew up in the household of the governor of Cuba, Diego Velázquez de Cuéllar. In 1518 Velázquez sent Olid to relieve Juan de Grijalva, but en route a hurricane destroyed Olid's ship and he returned to Cuba. On January 10, 1519, Olid sailed with Hernán Cortés' fleet, and took an active part in the conquest of Mexico. He fought at the Battle of Otumba on July 8, and also took part in the campaign against the Tarascans, who proved difficult foes due to their use of iron weapons, which the Aztecs lacked.
During the siege of Tenochtitlán, Olid squabbled with Pedro de Alvarado, and refused to assist him in an assault on the causeways leading into the city. This refusal lead to a resounding Spanish defeat, and Olid fled to Coyohuacan. While in Mexico, he married a Tlaxcalan woman.
In 1523, Cortés made Olid the leader of an expedition to conquer Honduras, but while resupplying in Havana, Olid (at a suggestion by Velázquez) declared his independence from Spain and set out to conquer Honduras for himself. Landing at Puerto Caballos, it was not long before all of Honduras was under Olid's control. On May 3, 1524, he founded the settlement of Triunfo de la Cruz. When Cortés learnt of Olid's rebellion, he sent Francisco de Las Casas against Olid with two warships. Despite the fact that both these ships were destroyed in a storm and many of his soldiers defected to Olid, Las Casas defeated Olid in battle and captured him.
Accounts of how Olid died vary; Bernal Díaz del Castillo asserts in his Verdadera Historia de la Conquista de Nueva España that Las Casas had him beheaded at Naco, while Antonio de Herrera y Tordesillas wrote that Olid's own soldiers rose up against and then murdered him.