Wali Allah received a traditional Islamic education from his father and is said to have memorized the Qur'an at the age of seven. In 1732 he made a pilgrimage to Mecca, and he then remained in the Hejaz (now in Saudi Arabia) to study religion with eminent theologians. He reached adulthood at a time of disillusionment following the death in 1707 of Aurangzeb, the last Mughal emperor of India. Because large areas of the empire had been lost to Hindu and Sikh rulers of the Deccan and the Punjab, Indian Muslims had to accept the rule of non-Muslims. This challenge occupied Wali Allah's adult life.

Wali Allah believed that the Muslim polity could be restored to its former splendour by a policy of religious reform that would harmonize the religious ideals of Islam with the changing social and economic conditions of India. According to him, religious ideas were universal and eternal, but their application could meet different circumstances. The main tool of his policy was the doctrine of tatbiq, whereby the principles of Islam were reconstructed and reapplied in accordance with the Qur'an and the Hadith (the spoken traditions attributed to Muhammad). He thereby allowed the practice of ijtihad (independent thinking by theologians in matters relating to Islamic law), which hitherto had been curtailed. As a corollary, he reinterpreted the concept of taqdir (determinism) and condemned its popularization, qismat (narrow fatalism, or absolute predetermination). Wali Allah held that man could achieve his full potential by his own exertion in a universe that was determined by God. Theologically, he opposed the veneration of saints or anything that compromised strict monotheism. He was jurisprudentially eclectic, holding that a Muslim could follow any of the four schools of Islamic law on any point of dogma or ritual.

The best known of Wali Allah's voluminous writings was Asrar ad-din ("The Secrets of Belief"). His annotated Persian translation of the Qur'an is still popular in India and Pakistan.