Stonehouse had a Trade Union upbringing and joined the Labour Party at the age of 16. He was educated at Taunton's Secondary Grammar School, Southampton and the London School of Economics. Stonehouse married Barbara Smith in 1948. They had three children. An economist, he became involved in co-operative enterprise and was a manager of African co-operative societies in Uganda 1952-54. He served as a director 1956-62 and president 1962-64 of the London Co-operative Society.
Stonehouse was first elected as Labour Co-operative Member of Parliament (MP) for Wednesbury in a 1957 by-election, having contested Twickenham in 1950 and Burton in 1951, the year he married Barbara Smith, with whom he was to have two children. He served as a junior minister of aviation. At the ministry, he was involved in BOAC's order of Boeing 707 aircraft, against his own recommendation that they should invest in a rival aircraft, the Super VC-10. This led to his throwing accusations at colleagues about the reasons for the decision. Then in the Colonial Office, John Stonehouse's rise continued, and in 1967 he became Minister for Technology and as Postmaster General under Wilson until the post was abolished by the Post Office Act 1969. When Labour was defeated in the 1970 General Election, he was not appointed to the Shadow Cabinet. When the Wednesbury constituency was abolished in 1974, he stood for and was elected to the nearby Walsall North constituency.
Stonehouse oversaw the introduction of the highly unpopular first and second class stamps.
The delay in his extradition was caused partly by reluctance on the part of the Australians to deport a British MP. However, six months after he was discovered, he was deported to the UK, though he had tried to obtain offers of asylum from Sweden or Mauritius.
He returned in June 1975, and was remanded in Brixton Prison until August. He continued to act as an MP. Although unhappy with the situation, the Labour Party did not expel him. On 7 April 1976, three weeks before his trial, he resigned the Labour whip, making them a minority government. A few days later he joined the English National Party.
He finally agreed to resign on August 28 as MP and also Privy Counsellor (becoming one of only three people to resign from the Privy Council in the 20th century). The by-election was won by Robin Hodgson, a Conservative.
After his conviction, Stonehouse's wife divorced him in 1978.
Whilst in prison, his health deteriorated. He was later moved to Blundeston Prison. Stonehouse was released early from prison in August 1979 due to having suffered three heart attacks and having undergone open heart surgery in November 1978.
After release, he worked as a volunteer fundraiser for east London Charity, Community Links for several years. He joined the Social Democratic Party, which later merged to become the Liberal Democrats.
Stonehouse married Sheila Buckley in Hampshire on 31 January 1981 and shortly afterwards their son was born. Stonehouse wrote three novels, and made several TV appearances, mostly in connection with discussing his disappearance. A month before his death, he abruptly collapsed on set during a TV show, but recovered. This was only temporary however. John Stonehouse died on the evening of 14 April 1988 from a fourth heart attack. A fourth novel he was working on at the time of his death was published posthumously, in 1989.