The son of a Jewish fruit merchant at Spitalfields, Isaacs entered the family business at the age of fifteen. In 1876-7 he served as a ships-boy and later worked as a jobber on the stock-exchange, 1880-4. He was called to the bar, the Middle Temple, in 1887.
A prosperous lawyer, Isaacs made his name in the Bayliss v. Coleridge libel suit in 1903, and the Whitaker Wright case in 1904. In 1904, he entered the House of Commons as Liberal Party Member of Parliament (MP) for the Reading constituency, a seat he held until 1913. During this period, he served as both Solicitor General and Attorney-General in the governments of Sir Henry Campbell-Bannerman and Herbert Henry Asquith, becoming the first Attorney-General to sit in the Cabinet in 1912. In 1913, he was made Lord Chief Justice, a position in which he served until 1921.
In 1918, Isaacs was appointed Ambassador to the United States, a position in which he served until 1919, while continuing at the same time as Lord Chief Justice. In 1921, he resigned the chief justiceship to become Viceroy of India. Although he preferred a conciliatory policy, he ended up using force on several occasions, and imprisoned Mahatma Gandhi in 1922. In MacDonald's National Government in August 1931, he briefly served as Secretary of State for Foreign Affairs, but stood down after the first major reshuffle in November due to ill-health.
Isaacs lived at Foxhill House in Earley, adjoining Reading, and was elevated to the Peerage as Baron Reading, of Erleigh in the County of Berkshire, in 1914, and continued to rise in the Peerage: he was created Viscount Reading, of Erleigh in the County of Berkshire, in 1916; Earl of Reading along with the subsidiary title of Viscount Erleigh, of Erleigh in the County of Berkshire, in 1917; and eventually Marquess of Reading in 1926. This is the highest rank in the Peerage reached by a Jew in British history.
Isaacs married Alice Edith Cohen in 1887.Lady Reading was a chronic invalid, who eventually died of cancer a year after Reading's viceroyalty ended. He then married Stella Charnaud, the first Lady Reading's secretary.
He assumed the surname Rufus Isaacs, which is still used by his male-line descendants.
Along with Alfred Mond and Herbert Samuel, Isaacs was a founding chairman of the precursor to the Israel Electric Corporation in the British Mandate of Palestine. The Reading Power Station in Tel-Aviv, Israel, was named in his honour.