Reynaud was born in Barcelonnette, Alpes-de-Haute-Provence. His father had made a fortune in the textile industry, enabling Reynaud to study law at the Sorbonne. Reynaud was elected to the French Chamber of Deputies from 1919 to 1924, representing Basses-Alpes, and again from 1928, representing a Paris district. Although he was first elected as part of the conservative "Blue Horizon" bloc in 1919, Reynaud shortly thereafter switched his allegiance to the center-right Democratic Republican Alliance party. Reynaud later became the vice-president of his party.

In the 1920s, Reynaud developed a reputation for laxity on German reparations, at a time when many in the French government backed harsher terms for Germany. In the 1930s, particularly after 1933, Reynaud's stance hardened against the Germans. Reynaud backed a strong alliance with the United Kingdom and, unlike many others on the French Right, better relations with the Soviet Union as a counterweight against the Germans.

Reynaud held several cabinet posts in the early 1930s, but he clashed with members of his party after 1932 over French foreign and defense policy and was not given another cabinet position until 1938. Like Winston Churchill, Reynaud was a maverick in his party and often alone in his calls for rearmament and resistance to German aggrandizement. Reynaud was a supporter of Charles de Gaulle's theories of mechanized warfare in contrast to the static defense doctrines that were in vogue among many of his countrymen, symbolized by the Maginot Line, and was an outspoken opponent of appeasement in the run-up to the Second World War. He also clashed with his party on economic policy, backing the devaluation of the franc as a solution to France's economic woes. However, Pierre Étienne Flandin, the leader of the Democratic Republican Alliance, agreed with several of Reynaud's key policy stances, particularly on Reynaud's defense of economic liberalism.

Reynaud returned to the cabinet in 1938 as Minister of Justice under Édouard Daladier. The Sudeten Crisis, which began not long after Reynaud was named Minister of Justice, again revealed the divide between Reynaud and the rest of the Alliance Démocratique; Reynaud adamantly opposed abandoning the Czechs to the Germans, while Flandin felt that allowing Germany to expand eastward would inevitably lead to a conflict with the Soviets that would weaken both. Reynaud publicly made his case, and in response Flandin pamphleted Paris in order to pressure the government to agree to Hitler's demands. Reynaud subsequently left his party to become an independent. Reynaud still had Daladier's support, however, whose politique de fermeté was very similar to Reynaud's notion of deterrence.

Reynaud, however, had always wanted the Finance ministry. He endorsed radically liberal economic policies in order to draw France's economy out of stagnation, centered on a massive program of deregulation, including the elimination of the forty-hour work week. The notion of deregulation was very popular among France's businessmen, and Reynaud believed that it was the best way for France to regain investors' confidence again and escape the stagnation its economy had fallen into. The collapse of Léon Blum's government in 1938 was a response to Blum's attempt to expand the regulatory powers of the French government; there was therefore considerable support in the French government for an alternative approach like Reynaud's.

Paul Marchandeau, Daladier's first choice for finance minister, offered a limited program of economic reform that was not to Daladier's satisfaction; Reynaud and Daladier swapped portfolios, and Reynaud went ahead with his radical liberalization reforms. Reynaud's reforms were successfully implemented, and the government stood down a one-day strike in opposition. Reynaud addressed France's business community, arguing that "We live in a capitalist system. For it to function we must obey its laws. These are the laws of profits, individual risk, free markets, and growth by competition."

Reynaud's reforms proved remarkably successful; a massive austerity program was implemented (although armament measures were not cut) and France's coffers expanded from 37 billion francs in September 1938 to 48 billion francs at the outbreak of war a year later. More importantly, France's industrial productivity jumped from 76 to 100 (base=1929) from October 1938 to May 1939. At the outbreak of war, however, Reynaud was not bullish on France's economy; he felt that the massive increase in spending that a war would stamp out France's recovery.

The French Right was ambivalent about the war in late 1939 and early 1940, feeling that the greater threat was from the Soviets. The Winter War put these problems into stark relief; Daladier refused to send aid to the Finns while war with Germany continued. News of the Soviet-Finnish armistice in March 1940 prompted Flandin and Pierre Laval to hold secret sessions of the legislature that denounced Daladier's actions; the government fell on 19 March. The government named Reynaud Prime Minister of France two days later.

Although Reynaud was increasingly popular, the Chamber of Deputies elected Reynaud premier by only a single vote with most of his own party abstaining; over half of the votes for Reynaud came from the French Section of the Workers' International (SFIO) party. With so much support from the left - and the opposition from many parties on the right - Reynaud's government was especially unstable; many on the Right demanded that Reynaud attack not Germany, but the Soviet Union. The Chamber also forced Daladier, whom Reynaud held personally responsible for France's weakness, to be Reynaud's Minister of National Defense and War. One of Reynaud's first acts was to sign a declaration with British Prime Minister Neville Chamberlain that neither of the two countries would sign a separate peace.

Reynaud abandoned any notion of a "long war strategy" based on attrition. Reynaud entertained suggestions to expand the war to the Balkans or northern Europe; he was instrumental in launching the allied campaign in Norway, though it ended in failure. Britain's decision to withdraw on 26 April prompted Reynaud to travel to London to personally lobby the British to stand and fight in Norway.