Many historians contend that Laozi actually lived in the 4th century BC, concurrent with the Hundred Schools of Thought and Warring States Period, but some claim he is not a historical figure. Laozi was credited with writing the central Taoist work, the Dao De Jing (Tao Te Ching), originally simply known by the author's name. Taishang Laojun is a title for Laozi in the Taoist religion. It refers to him as "One of the Three Pure Ones".

There are many popular accounts of Laozi's life, though facts and myths are impossible to separate regarding him. He is traditionally regarded as an older contemporary of Confucius, but modern scholarship places him centuries later or questions if he ever existed as an individual. Laozi is regarded as the author of the Dao De Jing, though it has been debated throughout history whether he authored it.

In legends, he was conceived when his mother gazed upon a falling star. It is said that he stayed in the womb and matured for sixty-two years. He was born when his mother leaned against a plum tree. He emerged a grown man with a full grey beard and long earlobes, which are a sign of wisdom and long life.

According to popular biographies, he worked as the Keeper of the Archives for the royal court of Chou. This allowed him broad access to the works of the Yellow Emperor and other classics of the time. Laozi never opened a formal school. Nonetheless, he attracted a large number of students and loyal disciples. There are numerous variations of a story depicting Confucius consulting Laozi about rituals.

Laozi is said to have married and had a son named Tsung, who was a celebrated soldier. A large number of people trace their lineage back to Laozi, as the T'ang Dynasty did. Many, or all, of the lineages may be inaccurate. However, they are a testament to the impact of Laozi on Chinese culture.

Traditional accounts state that Laozi grew weary of the moral decay of the city and noted the kingdom's decline. At the age of 160, he ventured west to live as a hermit in the unsettled frontier. At the western gate of the city, or kingdom, he was recognized by a guard.

The sentry asked the old master to produce a record of his wisdom. The resulting book is said to be the Tao Te Ching. In some versions of the tale, the sentry is so touched by the work that he leaves with Laozi to never be seen again. Some legends elaborate further that the "Old Master" was the teacher of the Buddha, or the Buddha himself.