Banisadr was born on 22 March 1933 in Hamedan. His father was an ayatollah and close to Ruhollah Khomeini. He studied finance and economics at the Sorbonne. In 1972, Banisadr's father died and he attended the funeral in Iraq where he first met Ayatollah Khomeini.
Banisadr had participated in the anti-Shah student movement during the early 1960s and was imprisoned twice, and was wounded during an uprising in 1963. He then fled to France. He later joined the Iranian resistance group led by Khomeini, becoming one of his hard-liner advisors. Banisadr returned to Iran together with Khomeini as the revolution was beginning in February 1979. He wrote a book on Islamic finance, Eghtesad Tohidi, an Arabic phrase that roughly translates as "The Economics of Monotheism."
Following the Iranian Revolution, Banisadr became deputy minister of finance on 4 February 1979 and was in office until 27 February 1979. He also became a member of the revolutionary council when Bazargan and others left the council to form the interim government. After the resignation of the interim finance minister Ali Ardalan on 27 February 1979, he was appointed finance minister by then prime minister Mehdi Bazargan. On 12 November 1979, Banisadr was appointed foreign minister to replace Ebrahim Yazdi in the government that was led by Council of the Islamic Revolution when the interim government resigned.
Banisadr was elected to a four-year term as president on 25 January 1980, receiving 78.9 percent of the vote in the election, and was inaugurated on 4 February. Khomeini remained the Supreme Leader of Iran with the constitutional authority to dismiss the president. The inaugural ceremonies were held at the hospital where Khomeini was recovering from a heart ailment.
Banisadr was not an Islamic cleric; Khomeini had insisted that clerics should not run for positions in the government. In August and September 1980, Banisadr survived two helicopter crashes near the Iran–Iraq border. During the Iran–Iraq War, Banisadr was appointed acting commander-in-chief by Khomeini on 10 June 1981.
The Majlis (Iran's Parliament) impeached Banisadr in his absence on 21 June 1981, allegedly because of his moves against the clerics in power, in particular Mohammad Beheshti, then head of the judicial system. Khomeini himself appears to have instigated the impeachment, which he signed the next day.
Even before Khomeini had signed the impeachment papers, the Revolutionary Guard had seized the Presidential buildings and gardens, and imprisoned writers at a newspaper closely tied to Banisadr. Over the next few days, they executed several of his closest friends, including Hossein Navab, Rashid Sadrolhefazi and Manouchehr Massoudi. Ayatollah Hussein Ali Montazeri was among the few people in the government in support of Banisadr, but he was soon stripped of his powers.
At the same time, the Iranian government outlawed all political parties, except the Islamic Republic Party. Government forces arrested and imprisoned members of other parties, such as the People's Mujahedin, Fadaian Khalq, Tudeh, and Paikar.
Banisadr went into hiding for a few days before his removal, and hid in Tehran, protected by the People's Mujahedin (PMOI). He attempted to organize an alliance of anti-Khomeini factions to retake power, including the PMOI, KDP, and the Fedaian Organisation (Minority), while eschewing any contact with pro-Shah exile groups. He met numerous times while in hiding with PMOI leader Massoud Rajavi to plan an alliance, but after the execution on 27 July of PMOI member Mohammadreza Saadati, Banisadr and Rajavi concluded that it was unsafe to remain in Iran.
In Banisadr's view, this impeachment was a coup d'état against democracy in Iran. In order to settle the political differences in the country, President Banisadr had asked for a referendum.
When Banisadr was impeached on 21 June 1981 he had fled and had been hiding in western Iran. On 29 July, Banisadr and Masoud Rajavi were smuggled aboard an Iranian Air Force Boeing 707 piloted by Colonel Behzad Moezzi. It followed a routine flight plan before deviating out of Iranian groundspace to Turkish airspace and eventually landing in Paris.
Banisadr and Rajavi found political asylum in Paris, conditional on abstaining from anti-Khomeini activities in France. This restriction was effectively ignored after France evacuated its embassy in Tehran. Banisadr, Rajavi and the Kurdish Democratic Party set up the National Council of Resistance of Iran in Paris in October 1981. However, Banisadr soon fell out with Rajavi, accusing him of ideologies favouring dictatorship and violence. Furthermore, Banisadr opposed the armed opposition as initiated and sustained by Rajavi, and sought support for Iran during the war with Iraq.
In 1991, Banisadr released an English translation of his 1989 text My Turn to Speak: Iran, the Revolution and Secret Deals with the U.S.. In the book, Banisadr alleged covert dealings between the Ronald Reagan presidential campaign and leaders in Tehran to prolong the Iran hostage crisis before the 1980 U.S. presidential election. He also claimed that Henry Kissinger plotted to set up a Palestinian state in the Iranian province of Khuzistan and that Zbigniew Brzezinski conspired with Saddam Hussein to plot Iraq's 1980 invasion of Iran.
Lloyd Grove of The Washington Post wrote: "The book is not what normally passes for a bestseller. Cobbled together from a series of interviews conducted by French journalist Jean-Charles Deniau, it is never merely direct when it can be enigmatic, never just simple when it can be labyrinthine." In a review for Foreign Affairs, William B. Quandt described the book as "a rambling, self-serving series of reminiscences" and "long on sensational allegations and devoid of documentation that might lend credence to Bani-Sadr's claims." Kirkus Reviews called it "an interesting-though frequently incredible and consistently self-serving-memoir" and said "frequent sensational accusations render his tale an eccentric, implausible commentary on the tragic folly of the Iranian Revolution."
Banisadr, in a 2008 interview with the Voice of America on the 29th anniversary of the revolution, claimed that Khomeini is directly responsible for the violence originated from the Muslim world and that Khomeini did turn against his promises stated in exile following the revolution. In July 2009, Banisadr publicly denounced the Iranian government's conduct after the disputed presidential election: "Khamenei ordered the fraud in the presidential elections and the ensuing crackdown on protesters." He said the government was "holding on to power solely by means of violence and terror" and accused its leaders of amassing wealth for themselves, to the detriment of other Iranians.
In published articles on the 2009 Iranian election protests, he ascribed the unusually open political climate before the election to the government's great need to prove its legitimacy. However, he said the government had lost all legitimacy. In particular, the spontaneous uprising had cost it its political legitimacy, and with Supreme Leader Ayatollah Ali Khamenei's threats – leading to the violent crackdown – its religious legitimacy.
Banisadr lives in Versailles, near Paris, in a villa closely guarded by French police. Banisadr's daughter, Firoozeh, married Masoud Rajavi in Paris following their exile. They later divorced and the alliance between him and Rajavi also ended.Touhid Economics, 1980
(with Jean-Charles Deniau) My Turn to Speak: Iran, the Revolution and Secret Deals With the U.S., Potomac Books (April 1991) ISBN 0-08-040563-0
Le Coran et le pouvoir: principes fondamentaux du Coran, Imago, 1993