Born near Kiev into a wealthy hasidic family, Eshkol received a traditional Jewish education. He joined a Zionist movement, and settled in Erez Israel in 1914, quickly becoming active in agricultural and financial affairs. He founded a workers' commune in Petah Tikvah, and became one of the founding members of the kevuzah Deganyah Bet.

After dealing with countrywide settlement problems for the Histadrut, Eshkol went to Berlin in 1934 to organize the transfer of German Jewish property. During World War II, Eshkol headed the finance department of the Haganah (underground military organization), and became treasurer of the Jewish Agency in 1949, heading its Land Settlement Department. Eshkol had a deep interest in the defense of Erez Israel, was a member of the Jewish Legion from 1918 to 1920, and in 1921 was elected to the defense committee of the Histadrut. He was arrested in Vienna in 1922 on a mission to buy arms.

In the 1940s he played a key role in the development of the Haganah. His interest and skills in agriculture, finance, and defense made Eshkol an active political leader, both before and after the declaration of statehood. After serving as deputy minister of defense during the War of Independence, he was elected to the Knesset (parliament) in 1951, and in 1952 became minister of finance. During his ministry Israel's gross national product increased 10% annually, and he was largely responsible for the development of the crucial National Water Carrier. In 1963 he succeeded David Ben-Gurion as prime minister of Israel.

As prime minister, Eshkol worked to improve Israel's foreign relations. During his term of office, West Germany established formal diplomatic relations with Israel in 1965, and relations with the United States were greatly improved. His efforts to mend relations with the Soviet Union resulted in permission being granted to some Soviet Jews to emigrate to Israel, and cultural ties were established between the two countries. Eshkol was prime minister during the Six-Day War of 1967.

Forced by public pressure to form a "Government of National Unity" on the eve of the war, he nevertheless was able to hold this government together for some time after the war. He firmly believed that Israel should not return Arab territories occupied in 1967 without a solution to the entire Arab-Israel conflict. In 1968 Eshkol received a crucial commitment from the United States to supply Israel with sophisticated fighter planes. He died on February 26, 1969.