Aegisthus was born from the darkest oracle ever spoken at Delphi. His father was Thyestes, the brother of King Atreus of Mycenae, a man who had already suffered the most infamous meal in Greek myth when Atreus killed Thyestes' own sons and served their flesh to him at a banquet. After that horror, Thyestes fled to Sicyon and asked the oracle of Apollo how he could avenge himself upon his brother. The priestess answered that he must father a son upon his own daughter, and that son would grow up to kill Atreus. Thyestes found his daughter Pelopia serving as a priestess in Sicyon, hid himself in the bushes while she performed a sacrifice, and raped her by the river where she went to wash the blood from her robes. In the struggle she snatched his sword from its scabbard and kept it.

Nine months later Pelopia gave birth to a son. Ashamed of his origin, she exposed the infant on a mountainside, where a goat found him and gave him her milk. Shepherds discovered the child and named him Aegisthus, from the Greek word for goat. They brought him to the palace, and Atreus, not knowing the baby's true parentage, raised him as his own son. Meanwhile Atreus had married Pelopia himself, still unaware that she was his niece and that the child was his brother's. When Aegisthus was still a boy, Atreus finally captured Thyestes and imprisoned him in a dungeon. In a gesture of cruel irony, Atreus sent the boy he believed to be his son to kill his old enemy. Aegisthus entered the cell carrying the sword his mother had given him. Thyestes recognised the weapon as his own, wrested it from the boy, and demanded that Pelopia be brought before them. When she saw Thyestes and the sword, she understood everything. She seized the blade and killed herself in front of her son. Aegisthus then took the bloody sword, found Atreus sacrificing a ram on the seacoast in thanksgiving for what he thought was his brother's death, and drove the blade into his back. Thyestes was freed, and father and son ruled Mycenae together, exiling Atreus' own sons Agamemnon and Menelaus to Sparta.

The exile did not last. Menelaus married Helen, the most beautiful woman in Greece, and with the power of Sparta behind him he drove Aegisthus and Thyestes from Mycenae and restored his brother Agamemnon to the throne. Aegisthus fled into obscurity while Agamemnon became the greatest king in Greece, commander of the thousand ships that sailed to Troy after Helen was abducted by Paris, prince of Troy. For ten years Agamemnon fought at Troy, leaving his wife Clytemnestra and his children behind in Mycenae. Aegisthus watched and waited.

While the Trojan War raged across the sea, Aegisthus returned to Mycenae. In the version told by Homer in the Odyssey, Clytemnestra at first resisted him, for Agamemnon had left a singer to guard her and keep her faithful. Aegisthus murdered the singer, marooned him on a desert island, and then seduced the queen. For seven years they lived as king and queen of Mycenae, lovers and co-conspirators, while the Greek army bled on the plains of Troy. Their partnership was built on mutual grievance. Clytemnestra hated Agamemnon for sacrificing their daughter Iphigenia at Aulis to win favourable winds for the fleet. Aegisthus hated the House of Atreus for the murder of his half-brothers and the theft of his father's throne. Together they plotted the death that would settle both scores.

When Agamemnon returned from Troy with the Trojan princess Cassandra, the prophetess whose visions no one believed, Clytemnestra welcomed him with feigned joy. She spread crimson tapestries for him to walk upon and led him to the bathhouse. There, according to some accounts, Aegisthus struck the first blow while Clytemnestra threw a net or robe over the struggling king. In Aeschylus' tragedy Agamemnon, it is Clytemnestra who wields the axe, but Aegisthus stands beside her to claim the throne. Cassandra died beside her captor, her prophecies fulfilled at last. Aegisthus ruled Mycenae for seven years with Clytemnestra at his side. They had three children of their own: a son named Aletes and two daughters, Erigone and Helen. But the murdered king had a son who was growing to manhood in exile.

In the eighth year of Aegisthus' reign, Orestes, the son of Agamemnon and Clytemnestra, returned to Mycenae in secret with his friend Pylades. He found Aegisthus in the palace, perhaps at a feast or in the courtyard, and struck him down. Some say Orestes killed Aegisthus first and then faced his mother. Others say the two murders happened together. In every version, Aegisthus died by the same sword that had killed Atreus, or by a blade wielded by the son of the man he had murdered. His death did not end the curse. Orestes was pursued by the Erinyes, the avenging spirits of blood-guilt, for the matricide that followed, and the House of Atreus continued its spiral of vengeance until the gods themselves intervened at Athens.