Parsons was born in Casselberry, Florida and attended Lake Howell High School in Winter Park, Florida, with future fellow Florida Gator Nick Calathes. Together, Parsons and Calathes helped the Lake Howell Silverhawks high school basketball team advance to the Florida Class 5A state basketball championship final four in 2005, 2006 and 2007, winning the state championship in 2007. As a senior, Parsons was a first-team all-state selection, and was recognized as the most valuable player of the state championship game after scoring thirty points and grabbing ten rebounds.
Parsons accepted an athletic scholarship to attend the University of Florida in Gainesville, Florida, where he played for coach Billy Donovan's Florida Gators men's basketball team from 2007 to 2011. Parsons commented that playing for four years under Donovan gave him an advantage over other players who left the team early.
During his freshman season, Parsons played in 36 games averaging 8.1 points per game and 4.0 rebounds per game, but the Gators failed to make the NCAA Tournament. During the 2008–09 season, Parsons saw more playing time and his scoring, rebounding and assists all improved. The Gators once again failed to make the tournament though.
In his junior season, Parsons averaged 12.4 points, 6.9 rebounds and 2.6 assists per game. On January 3, 2010, Parsons hit a seventy-five-foot shot with no time left on the clock in overtime to give the Gators a one-point victory over North Carolina State. The Gators were invited to the NCAA Tournament, but lost to BYU in the first round.
During the 2010–11 season, Parsons averaged 11.3 points and 7.8 rebounds in 34.1 minutes per game while leading the Gators to the best regular season record in the SEC. On January 23, 2011, the Gators trailed South Carolina by 1 when Parsons hit a three-point shot to give the Gators the win. On March 8, 2011, he was named the 2011 SEC Player of the Year, becoming the first Florida Gator to win that honor.
The Gators also made the NCAA Tournament for the second year in a row. In the first three rounds of the tournament, the Gators beat UC Santa Barbara, UCLA and BYU. In the Elite Eight, the Gators lost to Butler. Parsons was picked to the All-America fifth team by Fox Sports. Parsons graduated from Florida with a degree in telecommunications.
The Houston Rockets selected Parsons with the 38th overall pick in the 2011 NBA draft.
On September 3, 2011, Parsons signed a short-term deal with Cholet Basket of France for the duration of the NBA lockout. On October 31, 2011, he parted ways with Cholet following the end of the lockout. In three games, he averaged 10.0 points, 6.0 rebounds, 4.0 assists and 2.3 steals per game.
On December 18, 2011, Parsons signed with the Houston Rockets. Following the 2011–12 NBA season, Parsons was named to the NBA All-Rookie Second Team.
On March 3, 2013, Parsons recorded a then career high 32 points, along with 3 rebounds and 3 assists, in a 136–103 victory over the Dallas Mavericks. He made 12 of 13 field goal attempts, including 6 of 7 threes. In the final game of the 2012–13 regular season on April 17, 2013, against the Los Angeles Lakers, Parsons made a three-pointer at the buzzer to tie the game 90-90 and force overtime, but Houston lost to the Lakers 99–95 in OT.
On January 24, 2014, Parsons set an NBA record for three-pointers made in a half when he hit 10 in the second half of the Rockets' 87-88 loss to the Memphis Grizzlies; this coming after not making any three-pointers in the first half. With 34 points, he set a new career high. The 10 three-pointers (on 14 shots) also set a Rockets' franchise record for most three-pointers made in a regular season game.
After the 2013–14 season, Parsons became a restricted free agent. On July 10, 2014, he received a three-year, $46 million offer sheet from the Dallas Mavericks. The Rockets declined to match the offer and Parsons signed with the Mavericks on July 15.
Parsons' move to the Mavericks caused a stir amongst his former Rockets' teammates. James Harden stated, "Dwight [Howard] and I are the cornerstones of the Rockets. The rest of the guys are role players or pieces that complete our team. We’ve lost some pieces and added some pieces. I think we’ll be fine next season." Parsons responded with, "That's a pretty ridiculous statement if he meant that. That's part of the reason I wanted to go to Dallas, because I'm ready for that next step. I'm ready for a bigger role, and I'm ready for more leadership. If anybody should understand that, it's James, because he was in the same situation in Oklahoma City and then he got his chance to come to Houston and shine. I'm not real sure what that means."
On October 28, 2014, Parsons made his debut for the Mavericks in their season opening game against the San Antonio Spurs. In just under 34 minutes of action, he recorded 5 points on 2-of-10 shooting in addition to 4 rebounds and 2 steals in the 101–100 loss. Parsons responded to his disappointing debut by scoring 70 points (25-of-44 FG, 7-of-14 3PT) over his next three games as the Mavericks won all three. On March 8, 2015, Parsons returned from a seven-game absence with a sprained left ankle to record 11 points and 6 rebounds, helping the Mavericks defeat the Los Angeles Lakers 100–93. On April 22, he was ruled out for the remainder of the season with a knee injury.
On November 1, 2015, Parsons made his season debut for the Mavericks after missing the team's first two games while still recovering from off-season knee surgery. He managed just two points in 12 minutes of action as a starter, as the Mavericks defeated the Lakers 103–93. On December 18, he had a then season-best game with 16 points, 7 rebounds and 6 assists off the bench in a 97–88 win over the Memphis Grizzlies. On January 20, 2016, he scored 16 of his season-high 30 points in the fourth quarter and overtime of the Mavericks' 106–94 win over the Minnesota Timberwolves. Four days later, he topped that mark, scoring 31 points in a loss to the Houston Rockets. On January 29, he recorded 19 points and a season-high 10 rebounds in a 91–79 win over the Brooklyn Nets. On March 25, he underwent successful surgery to address the torn meniscus in his right knee, ruling him out for the rest of the season.
On July 7, 2016, Parsons signed a 4-year, $94.8M max contract with the Memphis Grizzlies. Heading into 2016 training camp, Parsons was on light duties coming off knee surgery. He did not play in the preseason or in the first six regular season games. On November 6, he made his debut for the Grizzlies against the Portland Trail Blazers, but in 22 minutes as a starter, he missed all eight of his field goals attempts. He appeared in six games for the Grizzlies before missing the next 17 with a bone bruise on his left knee. He made his return to the line-up on December 21, recording two points and two rebounds in 15 minutes against the Detroit Pistons. On March 13, 2017, he was ruled out indefinitely after he was diagnosed with a partial tear of the meniscus in his left knee.
In December 2013, Parsons appeared in print and video advertisements for Iconix Brand Group line Buffalo David Bitton with model Ashley Sky for the Spring 2014 line.