Nalbandian was born in Nakhichevan-on-Don, an Armenian town in southern Russia, and traveled extensively, although he visited Armenia itself only once. A radical intellectual, Nalbandian was an avid advocate of secularism and anti-clericalism, the use of modern Armenian (as opposed to classical Armenian) and a vocal critic of the conservative clergy of the Armenian Apostolic Church. He also espoused anti-Catholicism. Inspired by the Enlightenment and the Italian unification, Nalbandian advocated reform, cultural nationalism and agrarianism among Armenians. In his later years he was influenced by Russian radicals such as Alexander Herzen and Nikolay Chernyshevsky. For his association with them, he was persecuted and died in exile at 37.

A champion of modernism, he is seen as a follower of Khachatur Abovian. In turn, he influenced many others, including the novelist Raffi, Armenian nationalist revolutionaries (especially the Dashnaks), and Armenian Marxists, such as Alexander Miasnikian. Nalbandian was widely revered in the Soviet period, while Dashnaks adopted "Mer Hayrenik", based on his poem "The Song of an Italian Girl", as the anthem of the First Republic of Armenia in 1918. It was re-adopted by independent Armenia in 1991. Another poem by Nalbandian, glorifying freedom, has become a celebrated anthem since it was written in 1859.

Mikayel Nalbandian was born on 14 November (2 November in Old Style), 1829 in Nakhichevan-on-Don (New Nakhichevan), an Armenian-populated town near Rostov-on-Don founded by Crimean Armenians in 1779, after they were relocated by Catherine the Great. His father, Ghazar (or Lazar, d. 1864), and earlier ancestors were farriers (and/or blacksmiths), from which they got their last name, which originates from Persian nalband. He first studied, from 1837 to 1845, at the private school of Father Gabriel Patkanian, a pioneer of modern Armenian education.He was taught Russian and French and was exposed to Western literature and science. Patkanian's school was shut down by Catholicos Nerses Ashtaraketsi in October 1845. Nerses and Harutiun Khalibian, the pro-clerical mayor of Nakhichevan, believed Patkanian went too far by promoting secular subjects at his school.

From July 1848 to July 1853 Nalbandian worked as the secretary of Archbishop Matteos Vehapetian, the primate of the diocese of New Nakhichevan and Bessarabia, seated in Kishinev, in modern Moldova. During those years he was mostly based in Kishnev, but regularly visited his hometown and Odessa, Kherson, and Crimea for health treatment. During this period, he was known as a dpir, a low-level rank in the Armenian church akin to a clerk or deacon. For his liberal writings, he incurred the enmity of the church authorities. Catholicos Nerses developed an enmity towards Nalbandian for his alleged immoral writings. He was forced to flee Kishnev and New Nakhichevan to avoid religious persecution.

Nalbandian thereafter abandoned his plans to become a priest,and moved to Moscow in late July 1853. In October 1853 he began teaching the Armenian language at the Lazarev Institute of Oriental Languages in Moscow, after receiving a certificate from the Saint Petersburg Imperial University. There, he became acquainted with Stepanos Nazarian.Nalbandian was briefly arrested in Moscow in January 1854 for alleged "illegal activities", prompted by the Catholicos Nerses. He was fired from the Lazarev Institute in September 1854. After twice failing to enter as a regular student, Nalbandian attended the Imperial Moscow University from 1854 to 1858 as an auditing student of medicine.

In 1858 he collaborated with Stepanos Nazarian to establish the monthly journal Hyusisapayl («Հիւսիսափայլ», Northern Lights or Aurora Borealis), which was published in Moscow until 1864. It has been characterized as a radical, secular, and anti-clerical journal, which was the earliest public voice of liberalism among Armenians.The name was influenced by the journal Poliarnaia zvezda ("Northern Star"), published by Russian radicals Herzen and Ogarev in London. He left the editorial board of the monthly in the fall of 1859; however, his works continued to be published there. Until his departure, Nalbandian authored and translated most of the articles for Hyusisapayl.

From March to July 1859 he traveled throughout Europe, visiting Warsaw, Paris, London, and several German cities, where he met activists (e.g., Stepan Voskan, editor of Paris-based Arevmutk) and acquired knowledge about the socio-economic and political conditions of the time. In June 1860 he defended his dissertation at the Faculty of Oriental (Eastern) Studies at the Saint Petersburg Imperial University. His dissertation was titled "On the Study of the Armenian Language in Europe and Scientific Significance of Armenian Literature". To become a candidate, he had earlier passed exams in history, theology and the following languages: Russian, Armenian, Georgian, and Turkish.

He subsequently left for Calcutta, India to arrange the transfer of a large amount willed by an Armenian merchant to the Armenian community of New Nakhichevan. In a July 1860 meeting of some 300 community members of New Nakhichevan, he was elected as the representative to travel to India. His travels lasted from August 1860 to May 1862. They had a significant impact on Nalbandian's views. He visited Tiflis, where he met Ghazaros Aghayan and other Armenian intellectuals, Russian (Eastern) Armenia and Constantinople. In his only visit to Russian Armenia, he traveled to Yerevan, Etchmiadzin (the center of the Armenian Church), and the grave of Mesrop Mashtots, the 5th-century inventor of the Armenian alphabet, in Oshakan. In Constantinople he met with Harutiun Svadjian, the editor of Meghu, and other members of the local Armenian intelligentsia.

On his way to London to obtain official permission for his journey, he visited Italy (Messina, Sicily, Naples, Rome, and Genoa), and contacted with independence activists—supporters of Giuseppe Garibaldi, the leader of the Italian unification movement.In London, he was confirmed by the Russian embassy and the British Foreign Office as New Nakhichevan's representative to arrange the transfer of the will from India. He thereafter traveled to Calcutta via Marseille, Alexandria, Suez, Aden, Ceylon, and Madras. After successfully arranging the transfer of the money of Maseh Babajan, Nalbandian left India in September 1861.

In May 1862 he returned to Petersburg, where he participated in the activities of Land and Liberty along with Nikolay Chernyshevsky and Nikolai Serno-Solovyevich. His contacts with Russian radicals led to his arrest on 14 June 1862 in New Nakhichevan. He was initially taken to Ekaterinoslav, subsequently to Moscow, and eventually to the Peter and Paul Fortress in Petersburg on 27 July 1862. He was held at the Alekseyevskiy ravelin of the fortress with Nikolay Chernyshevsky, Nikolai Serno-Solovyevich, and others. In prison he acquired rheumatism.

He was allowed to read books by the prison administration. He read encyclopedias, Khachatur Abovian's Wounds of Armenia and made extensive annotations, Henry Thomas Buckle's History of Civilisation in England, Georg Kolb's Handbuch der vergleichenden Statistik, Dmitri Mendeleev's textbook Organic Chemistry, and Alexis de Tocqueville's Democracy in America.

On 10 December 1865 Nalbandian was found guilty by the Governing Senate in the following crimes: being aware of the criminal intentions of the "London propagandists", supporting them in disseminating banned literature in southern Russia among Armenians, and an aspiration to start an anti-government movement.

From May to late November 1865 Nalbandian was put into virtual house arrest in St. Petersburg. He was then exiled to the city of Kamyshin in the Saratov Governorate. He reached Kamyshin "more dead than alive," in his own words. Having already contracted tuberculosis, he also frequently had a high fever. Nalbandian died on 31 March (12 April in the New Style) in Kamyshin.

In accordance to his wishes, his two brothers took his body to New Nakhichevan. On 13 April they reached New Nakhichevan and took his body to the Armenian Cathedral of St. Gregory the Illuminator. His funeral took place on 14 April; thousands of people attended it. He was buried at the courtyard of the Holy Cross Armenian Church in Rostov-on-Don, located some 5 kilometres (3.1 mi) to the north of New Nakhichevan. His funeral turned into an anti-government demonstration, which led to a year-long investigation by the Russian police. In 1902 the Armenian community of New Nakhichevan erected Nalbandian's bust on his grave.