Born in 1829 as the eldest son of Nishi Tokinori, a Chinese-medicine physician of Tsuwano Domain in Iwami (today Tsuwano, Shimane). His childhood name was Keitaro. Called a prodigy, he read the Classic of Filial Piety at four and the Four Books and Five Classics at six. He studied Zhu Xi learning at the domain school Yoroukan, then turned to Western studies and went to Edo in 1853. Becoming an assistant instructor at the Bansho Shirabesho (the shogunate's institute for Western studies), he was sent by the shogunate in 1862 with Tsuda Mamichi and others to study at Leiden University in the Netherlands (1863–65). Under Professor Vissering he studied philosophy, law, economics, and statistics. After returning home, he served the shogunate at the end of the Tokugawa period, and after the Restoration held successive posts in the Meiji government's Army, Education, and Imperial Household Ministries, contributing also to the modernization of the army. In 1874, with Mori Arinori and others, he formed the 'Meirokusha' society and contributed enlightenment essays to the Meiroku Zasshi. Of special note is his translation of Western abstract concepts into Sinitic compounds, laying the foundation of the lexicon of modern Japanese. Many of the Japanese terms indispensable today — 'tetsugaku' (philosophy), 'kagaku' (science), 'geijutsu' (art), 'risei' (reason), 'ishiki' (consciousness), 'kannen' (idea), 'shukan' (subject), 'kyakkan' (object), 'teigi' (definition), 'meidai' (proposition), 'en'eki' (deduction), 'kinou' (induction), 'shinrigaku' (psychology) — were coined by him. He died in Tokyo in 1897 at age 68.

Learned and industrious, an introspective rationalist. Respected from boyhood as the Tsuwano prodigy, his acquisition of Dutch and English learning too was of uncommon speed. A linguistic genius who, grappling throughout his life with the basic question of 'can the Japanese language express Western thought?', used the generative power of kanji to fix Western concepts in Japanese. Politically moderate, he contributed to the Meiji bureaucracy as a man of affairs. Not as radical as Mori Arinori, he quietly laid the foundations of enlightenment thought.

The translation terms Nishi coined — 'tetsugaku' (philosophy), 'kagaku' (science), 'geijutsu' (art), 'risei' (reason), and many more — are widely settled in modern Japanese, Chinese, Korean, and Vietnamese, becoming the foundation of East Asian modern lexicon. China adopted many of these terms by reimporting them from Japan, and words like 'zhexue' and 'kexue' are everyday modern Chinese. His achievements as a member of the Meirokusha in building the intellectual discursive space of modern Japan are also great. As one of the figures who created the preconditions of modern Japanese 'scholarship' and 'thought,' he is being reappraised from both the intellectual-history and Japanese-language-history sides. Nishi's former residence in Tsuwano is preserved as an Important Cultural Property of Shimane Prefecture.