Educated at OConnell School and University College Dublin (UCD), graduating in modern languages, including Irish, and law. At the Kings Inns won the Victoria Prize in 1913 and 1914. Called to the bar 1914. Joined staff of Attorney-General 1922; Attorney-General 192632 and represented the government at Imperial Conferences and League of Nations. Called to the inner bar in 1925 and in 1926 elected a Bencher of the Honourable Society of Kings Inns.
Elected to Dáil Éireann in 1933 for County Dublin; subsequently sat for Dublin Townships and Dublin South-East. By 1948 he had become a leading counsel but not prominent in politics. In February 1948 was asked to become Taoiseach of an inter-party Government as the one person who could unite the diverse political elements involved. This first coalition under him saw two significant and controversial events: the declaration of a republic and the Mother and Child health scheme, which later led to the break-up of the Government. The declaration that the state was a republic and that the External Relations Act would be repealed was made by Costello at a press conference in Canada on 7 September 1948, and the Republic of Ireland was formally inaugurated on 18 April (Easter Monday) 1949.
The Costello Government had other noteworthy achievements. A new record was set in house-building, the Industrial Development Authority was established, and the Minister for Health, Doctor Noel Browne, brought about a spectacular advance in the treatment of tuberculosis. The same minister produced the Mother and Child health scheme in 1950 for maternity and child health with no means test or income limit. The scheme was strongly opposed by the Catholic hierarchy, on the principle that provision for the health of children was an essential part of the responsibilities of parents. Government support for Doctor Browne melted away in face of this determined opposition and he resigned in April 1951.
The Baltinglass Post Office affair of December 1950 cost the Government the support of two Independent deputies when the minister, James Everett, tried to supplant a postmistress, Helen Cooke, whose family had held the position since 1870. A dispute with the farming community over the price of milk was another of the apparently unrelated incidents that led Costello to seek a dissolution of the Dáil in May 1951.
After the general election of June 1951 Fianna Fáil formed a Government, although not having a majority. In the next general election, in May 1954, Fianna Fáil was defeated and Costello again headed a coalition Government. With a comfortable majority, it seemed set for the full term, but an outbreak of militant republican activity in Northern Ireland and Britain caused internal strains. The Government took strong action against the republicans. Seán MacBride, the leader of Clann na Poblachta, tabled a motion of no confidence, based on the weakening state of the economy; then Fianna Fáil tabled its own motion of no confidence, and, rather than face almost certain defeat, Costello again asked the President to dissolve the Dáil and Seanad.
In the general election of March 1957 de Valera won a record number of seats, and Fianna Fáil took office again. Costello returned to the bar and for the second time overcame the tradition that a practice could not be built up again after years of absence. In 1959, when Richard Mulcahy resigned the leadership of Fine Gael to James Dillon, Costello retired to the back benches. He was a member of the Royal Irish Academy from 1948 and received honorary degrees from many American universities.
In March 1975 he was made a freeman of the city of Dublin, along with his old political opponent Éamon de Valera. He practised at the bar up to a short time before his death in Dublin on 5 January 1976.