He was born in London of a family whose roots were at Birr in Ireland. He studied at Trinity College, Dublin, and graduated in the mechanical engineering tripos at the University of Cambridge, where he was a member of St John`s College. He served an apprenticeship from 1877 at the Newcastle works of Sir William Armstrong (1810-1900) and subsequently worked for a time for Kitsons, the Leeds engineering company.

In 1884 he moved to Clarke, Chapman & Co, makers of dynamos, and took out his first patents for the steam turbine in the same year. The company made 200 turbo-dynamos by 1888, chiefly for lighting ships. He built the first power station with turbo-generating plant in Newcastle in 1890.

Three years later he set up a company to build steam turbines for ships, which survives as part of the Siemens group. He demonstrated the result of his researches, the Turbinia, which could achieve a speed of 34 knots, at the Royal Navy`s Spithead Review in 1897. The demonstration led to the building of a turbine-powered destroyer, HMS Viper in 1899, and to the use of turbines in the Dreadnought class of battleships. In 1901 his company provided plant for the King Edward, the first turbine-driven passenger ship. The Turbinia is now displayed in the Discovery Museum in Newcastle-upon-Tyne, and there are displays relating to Parsons in the museum of Irish scientists in his family home at Birr Castle.