Mundella was born in Leicester, the son of Antonio Mundella, an Italian refugee and his wife Rebecca Allsop of Leicester. He worked in the hosiery trade and became a partner in the firm of Hine and Mundella, manufacturers of Nottingham, Loughborough, and elsewhere. He was Sheriff of Nottingham in 1852. In 1859 Mundella originated and organised the first Courts of Conciliation and Arbitration to settle disputes between capital and labour. He was a J.P. for Middlesex and for Nottingham Borough and was an Alderman, President of the Chamber of Commerce, and president of the Board of Arbitration for Nottingham.
Mundella was elected as Member of Parliament for Sheffield in the 1868 general election. He had been asked to stand by trade unionist William Dronfield, to defend the interests of labour in the wake of the Sheffield Outrages. He served as President of the second day of the first ever Co-operative Congress in 1869. When the Sheffield constituency was divided under the Redistribution of Seats Act 1885, he was elected as MP for Sheffield Brightside, a seat he held until his death.
Having made a close study of the educational systems of Germany and Switzerland, Mundella was an early advocate of compulsory education in England. He rendered valuable service in connexion with the Elementary Education Act of 1870, and the educational code of 1882, which became known as the "Mundella Code," marked a new departure in the regulation of public elementary schools and the conditions of the Government grants. To his initiative was chiefly due the Factory Act of 1875, which established a ten-hours day for women, and children in textile factories; and the Conspiracy Act, which removed certain restrictions on trade unions. It was he also who established the labour department of the board of trade and founded the 'Labour Gazette'. He introduced and passed bills for the better protection of women and children in brickyards and for the limitation of their labours in factories;. and he effected substantial improvements in the Mines Regulation Bill, and was the author of much other useful legislation. In recognition of his efforts, a marble bust of Mundella, by Boehm, subscribed for by 80,000 factory workers, chiefly women and children, was presented to Mrs Mundella. The bust, now restored, is situated in the Bromley House Library in Nottingham. There is also an original oil painting of Mundella by A J Black on the second floor. An oil portrait by Arthur Stockdale Cope was also presented, and hung in the Mayor's parlour in Sheffield, and is now in the library. Both the Boehm bust and the Cope painting are the property of Mundella Grammar School.
Mundella served under William Ewart Gladstone as Vice-President of the Committee on Education between 1880 and 1885. He then served under Gladstone and later Lord Rosbery as President of the Board of Trade (with a seat in the cabinet) in 1886 and between 1892 and 1894. In 1880 he was sworn of the Privy Council.
The system of price regulation, which, as President of the Board of Trade he imposed upon rail freight, was a disaster for the railways and, in the longer term, for the railways' customers. It was based on the fallacious, but widely held assumption, that the cost of moving a ton of freight was proportional to the distance moved. In fact, the cost per ton mile depends mainly on the number of tons being carried and the amount of loading and unloading involved. It does not cost very much more to move 100 tons 100 miles, than to move them 1 mile. The practical consequence was that the railways had to turn away traffic, that could be efficiently and profitably moved by rail, whilst they were not permitted to raise prices for unprofitable traffic.
Mundella's 1894 resignation from the Board of Trade was brought about by his connection with a financial company which went into liquidation in circumstances calling for the official intervention of the Board. However innocent his own connection with the company was, it involved him in unpleasant public discussion, and his position became untenable. Mundella died in July 1897.