Gus O’Donnell was a Lecturer at the University of Glasgow in the Political Economy Department from 1975 until 1979, before he joined the Treasury as an economist.

In 1985, he joined the British Embassy in Washington, and in 1989 became Chancellor Nigel Lawson's press secretary and then Press Secretary to the Prime Minister John Major.

From 1997 to 1998, O'Donnell was the UK's Executive Director to the International Monetary Fund and the World Bank, in Washington, and then returned to HM Treasury to serve as Director of Macroeconomic Policy and Prospects. He was also Head of the Government Economics Service, with overall responsibility for the professional economists in Her Majesty's Government. In 1999, he was appointed Managing Director of Macroeconomic Policy and International Finance, with responsibility for fiscal policy, international development, and European Economic and Monetary Union.

In 2002, O'Donnell took over as Permanent Secretary of the Treasury. He went on to serve as the Cabinet Secretary and Head of the Civil Service between 2005 and 2011, under three Prime Ministers: Tony Blair, Gordon Brown and David Cameron.

On his retirement in January 2012, O'Donnell was created a life peer as Baron O'Donnell of Clapham, and sits in the House of Lords as a crossbencher. He became a Visiting Professor in the School of Public Policy at UCL in 2012.​