Born in Minnigaff, Kirkcudbrightshire, Mirrlees was educated at the University of Edinburgh (MA in Mathematics and Natural Philosophy in 1957) and Trinity College, Cambridge (Mathematical Tripos and PhD in 1964 with thesis title Optimum planning for a dynamic economy), where he was a very active student debater. One contemporary, Quentin Skinner has suggested that Mirrlees was a member of the Cambridge Apostles along with fellow Nobel Laureate Amartya Sen during this period. Between 1968 and 1976, Mirrlees was a visiting professor at MIT three times. He taught at both Oxford University (1969–1995) and University of Cambridge (1963- and 1995-).
During his time at Oxford he published papers on economic models for which he would eventually be awarded his Nobel Prize. They centred on situations in which economic information is asymmetrical or incomplete, determining the extent to which they should affect the optimal rate of saving in an economy. Among other results, they demonstrated the principles of "moral hazard" and "optimal income taxation" discussed in the books of William Vickrey. The methodology has since become the standard in the field.
Mirrlees and Vickrey shared the 1996 Nobel Prize for Economics "for their fundamental contributions to the economic theory of incentives under asymmetric information".
Mirrlees is also co-creator, with MIT Professor Peter A. Diamond of the Diamond-Mirrlees Efficiency Theorem, developed in 1971.
Mirrlees is emeritus Professor of Political Economy at the University of Cambridge, and Fellow of Trinity College, Cambridge. He spends several months a year at the University of Melbourne, Australia. He is currently the Distinguished Professor-at-Large of The Chinese University of Hong Kong as well as University of Macau. In 2009, he was appointed Founding Master of the Morningside College of The Chinese University of Hong Kong.
Mirrlees is a member of Scotland's Council of Economic Advisers. He also led the The Mirrlees Review, a review of the UK tax system by the Institute for Fiscal Studies.
His students have included eminent academics and policy makers Sir Partha Dasgupta, Professor Huw Dixon, Lord Nicholas Stern, Professor Anthony Venables, Sir John Vickers.