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Burnet's father, a bank manager, had emigrated to Australia from Scotland as a young man. Burnet was born in Traralgon and studied medicine at Melbourne University, gaining his MD in 1924. After a period abroad at the Lister Institute, London, where he gained his PhD in 1928, Burnet returned to Melbourne to work at the Walter and Eliza Hall Institute; he remained here until his retirement in 1965, having been its director since 1944.

From 1932 until 1933 Burnet worked with the Medical Research Council virology unit in London on influenza. He continued to work with the flu virus in Melbourne, searching for something more convenient than ferrets in which to cultivate the virus. Following the lead of Ernest Goodpasture, Burnet showed (1935) that flu virus could be grown in chick embryo (hen's eggs). While developing this new technique Burnet made an unexpected discovery. Adult hens could be infected with flu and, as was well known, develop antibodies against the virus. Yet the chicks born from the eggs used to grow the flu virus failed to develop any flu antibodies. It appeared that there was a period in development before which an organism was “immunologically illiterate”; it could not distinguish between its own tissue and alien tissue.

In 1949 Burnet drew the immunological conclusions from his work. If an antigen were injected into an animal before birth it should develop an immunological tolerance to that antigen, and consequently fail to produce antibodies if ever exposed later in life. But, Burnet discovered, this did not happen. While a young chick exposed to the antigen as an embryo would fail to develop antibodies, such chicks in adulthood display the usual intolerance and produce antibodies to the appropriate antigen. Burnet had failed to realise that the exposure to the antigen must be continuous for tolerance, not only to develop, but be maintained. The point was later established by Peter Medawar and his colleagues in 1953. It was for this work that Burnet shared the 1960 Nobel Prize for physiology or medicine with Medawar.

Burnet himself found his work on antibodies more satisfying. How, he asked, are organisms able to respond so quickly and so effectively to antigens never before encountered? In 1957, in a paper entitled Antibody Production Using the Concept of Clonal Selection, Burnet argued that antibodies, or more accurately the lymphocytes that produce the antibodies, are so comprehensive in their diversity that there is likely to be an antibody in circulation to match any conceivable antigen. The lymphocytes are specialized cells and can respond to just one kind of antigen by producing the appropriately matching antibodies. Once stimulated, however, the lymphocytes will pump out vast numbers of antibodies indefinitely.

Burnet described his work on his clonal selection theory in his autobiography, Changing Patterns (1968).