Paasikivi was orphaned at the age of 14 and was raised by his aunt. In 1897 he graduated as a lawyer and married Anna Forsman. He became a doctor of law 1901, and 1902 the Head Director of Finland's National Bank. For practically all of his adult life he moved in the inner circles of Finland's politics. He supported greater autonomy for Finland, an independent Cabinet (Senate), and resisted Russia's panslavic intentions to make Russian the only official language everywhere in the Russian Empire. He belonged, however, to the more complying Fennoman Party, opposing radical counter-productive steps which could be perceived as aggressive by the Russians.
During the First World War Paasikivi began to have doubts about the Fennoman Party’s obedient line. After the March Revolution in Russia 1917 Paasikivi became part of the council that begun to formulate new legislation. Initially he supported increased autonomy within the Russian Empire, in opposition to the Social Democrat Cabinet (Senate) which in vain strived for more far-reaching autonomy, but after the Bolshevik October Revolution Paasikivi championed full independence – albeit in the form of constitutional monarchy.
During the Finnish Civil War Paasikivi was firmly on the side of the lawful White government. As Prime Minister May-November 1918 he strived for continued constitutional monarchy with Väinö I of Finland (a German Prince of Hesse) as King, intending to ensure Finland of German support against Bolshevist Russia. However, as Germany lost the World War, Monarchy had to be scrapped for a Republic more in the taste of the victorious Entente. Paasikivi’s Cabinet (Senate) resigned and he returned to the bank.
Paasikivi, as politically Conservative, was a firm opponent of Social Democrats in the cabinet, or Communists in the Parliament. Tentatively he supported the semi-fascist Lapua movement which requested radical measures against the political Left. But eventually, as the Lapua movement radicalized, assaulting also Ståhlberg, the Liberal former President of Finland, Paasikivi like many other supporters turned away from the radical Right. Later he became chairman for the Conservative Kokoomus party in 1934, as a champion of democracy, and achieved the party's rehabilitation after its suspicious closeness to the Lapua movement and its failed coup d'etat.
Widowed in 1931 he re-married Aili Valve in 1936, resigned from politics, but was persuaded to accept the position as Ambassador to Sweden, at this time regarded as Finland's most important embassy. Authoritarian regimes seizing power in Germany, Poland and Estonia made Finland increasingly isolated with the threatening Bolshevist Soviet Union. After the gradual dissolution of the League of Nations, and as it turned out that France and the United Kingdom were disinterested, Sweden was the only akin regime left who possibly could give Finland any support at all. Approximately since the failed Lapua coup, Paasikivi and Mannerheim had belonged to a close circle of Conservative Finns discussing how this could be achieved.
In Stockholm Paasikivi strived for Swedish defence guarantees, alternatively a defensive alliance or a defensive union between Finland and Sweden. He was perhaps not the best choice for that position but he did what he could. Since the Civil War the relations between Swedes and Finns had been frosty. The revolutionary turmoil at the end of the World War had in Sweden led to Parliamentarism, increased Democracy, and a dominant role for the Swedish Socialdemocrats. In Finland, however, the result had been a disastrous Civil War and a total defeat for Socialism. At the same time as when Paasikivi arrived in Stockholm, it became known that President Svinhufvud retained his aversion for Parliamentarism and (after pressure from Paasikivi's Conservative Party) had declined to appoint a Cabinet with Social Democrats as Ministers. This didn't improve Paasikivi's reputation among the Swedish Social Democrats dominating the government, who were sufficiently suspicious due to his association with Finland's Monarchist attempt in 1918, and the failed Lapua coup in 1932.
Things actually improved, partly due to Paasikivi's efforts, partly since President Kallio had been elected. He was a President both approving Parliamentarism and appointing Social Democrats to the Cabinet. But the suspicions between Finland and Sweden were too strong: During the Winter War Sweden's support for Finland was considerable, but short of one critical feature: Sweden did neither declare war on Soviet Union nor send regular troops to Finland's defense. This made many Finns, including Paasikivi himself, judge his mission in Stockholm to have been a failure.
Prior to the Winter War, Paasikivi became Finnish representative in the negotiations in Moscow. Seeing that Stalin did not intend to change his policies, he supported compliance with some of the demands. When the war broke out, Paasikivi was asked to enter Risto Ryti’s Cabinet as a Minister without portfolio - in practice in the role of distinguished political advisor. He ended up in the Cabinet's leading triumvirate together with Risto Ryti and Foreign Minister Väinö Tanner (chairman for the Social Democrats). He also led the negotiations for an armistice and the peace, and continued his mission in Moscow as an ambassador. In Moscow he was, by necessity, isolated from the most secret thoughts in Helsinki, and when he found out that these thoughts run in the direction of a revanche on Germany's side, he resigned. Paasikivi retired for the second time.
In the summer of 1941, when the Continuation War had begun, he took up writing his memoirs. By 1943 he concluded that Germany was going to lose the war and that Finland was in great danger as well. However, his initial opposition against the pro-German politics of 1940-41 was too well known, and his first initiatives for peace negotiations were met with little support both from Field Marshall Mannerheim and from Risto Ryti, who now had become President.
Immediately after the War, Mannerheim appointed Paasikivi Prime Minister. For the first time in Finland a Communist, Yrjö Leino, was included in the Cabinet. Paasikivi's policies were realist, but radically different than those of the previous 25 years. His main effort was to prove that Finland would present no threat to the Soviet Union, and that both parties would gain from confident peaceful relations. He had to comply with many Soviet demands, including the War Crimes trial. When Mannerheim resigned, parliament selected Paasikivi as the succeeding president.
As a president, Paasikivi kept Finland's foreign relations in the foreground, trying to ensure a stable peace and wider freedom of action. Paasikivi concluded that, all the fine rhetoric aside, Finland had to adapt to superpower politics and sign treaties with Soviet Union to avoid a worse fate. Thus he managed to stabilize Finland's position. He was re-elected in 1950.
Stalin's death made Paasikivi's job easier. By the end of Paasikivi's second six-year term, Finland had got rid of most political limitations. The Karelian refugees had been resettled, the war reparations had been paid, the rationing had ended and in 1955 the Soviet Union removed its troops from Porkkala marine base at Helsinki.
He did not actively seek re-election and ended his term March 1, 1956. He died in December, not having yet finished his memoirs.