He began staging class plays while still a high school pupil. After training at the Royal Dramatic Theatre, he began acting professionally in 1925 and directing for the stage in 1927. Stimulated by the expressive visual power of the cinema after viewing an Eisenstein film, he ventured successfully into film directing in 1929 with the silent The Strongest. But with the advent of sound and the abundance of stagy films on the Swedish screen, he became disillusioned with cinema and returned to stage directing. In 1930 he was appointed head director of the Royal Dramatic Theatre. During the following decade he gained a reputation as one of Sweden's most accomplished stage directors. In the 40s he returned to filmmaking and was instrumental in the renaissance of Swedish cinema, dormant since the silent era.

Sjöberg was Sweden's most important director before the advent of Ingmar Bergman, who began his film career as screenwriter for Sjöberg's internationally successful drama Hets (known as Torment in the US and as Frenzy in England). Sjöberg's remarkable screen adaptation of Strindberg's Miss Julie won the grand prize (in a tie with De Sica's Miracle in Milan) at the 1951 Cannes Film Festival. His other important films were Himlaspelet / The Road to Heaven (1942) and Bare en mor / Only a Mother (1949), but generally after Miss Julie (1951), his screen work was uneven. Famous for his elegant adaptations from the stage and literature, he collaborated on most of his own scripts.