Cao Cao was born in the county of Qiao (譙, present day Bozhou, Anhui) in 155. His father Cao Song was a foster son of Cao Teng, who in turn was one of the favorite eunuchs of Emperor Huan. Some historical records, including Biography of Cao Man, claim that Cao Song was originally surnamed Xiahou (thus making Cao Cao a cousin of Xiahou Dun and Xiahou Yuan, two of his most prominent generals). In the fictionalized Romance of the Three Kingdoms, Cao Cao's father was originally a Xiahou and was adopted into the Cao family.

Cao Cao was known for his craftiness as a young man. According to the Biography of Cao Man, Cao Cao's uncle often complained to Cao Song regarding Cao Cao's childhood indulgence in hunting and music with Yuan Shao. To counter this, Cao Cao one day feigned a fit before his uncle, who hurriedly informed Cao Song. Cao Song rushed out to see his son, who then acted normally. When asked, Cao Cao replied, "I have never had such illness, but I lost the love of my uncle, and therefore he had deceived you." Henceforth, Cao Song ceased to believe the words of his brother regarding Cao Cao, and thus Cao Cao became even more blatant in his wayward pursuits.

At that time, there was a man living in Runan named Xu Shao who was famed for his ability to evaluate one's potentials and talents. Cao Cao paid him a visit in hopes of receiving the evaluation that will earn him some reputation politically. Originally Xu Shao pondered and refused to make a statement; however, under persistent questioning, he finally said, "You would be a capable minister in peaceful times and an unscrupulous hero in chaotic times." Cao Cao took this as a compliment and was very pleased as it was recorded that he "laughs and leaves" after receiving said comment. It is worth noting that there are two other versions of the comment in other unofficial historical records: "capable minister in peaceful times, righteous hero in chaotic times"^{[citation needed]} and "sinister foe in peaceful times, great hero in chaotic times."^{[citation needed]}

At twenty, Cao Cao was recommended to be a district captain of Luoyang. Upon taking up the post, Cao Cao placed rows of multicolored staffs outside his office and ordered his deputies to flog those who violated the law, regardless of their status. An uncle of Jian Shuo, one of the most powerful and influential eunuchs under Emperor Ling, was once caught walking in the city beyond the evening curfew hour by Cao Cao and given his fair share of flogging. This prompted Jian Shuo and other higher authorities to "promote" Cao Cao to another position outside the imperial capital (governor of Dunqiu County) to remove his management.

When the Yellow Turban Rebellion broke out in 184 Cao Cao was recalled to Luoyang and promoted to a captain of the cavalry (騎都尉) and sent to Yingchuan to put down the rebels there. He was successful in his military exploits and was further promoted to Governor of Dong Commandery (東郡).

Battle of Guandu

In the spring of 200, Yuan Shao, the most powerful warlord of the north, amassed more than 100,000 troops and marched from Ye on Xuchang. To defend against the invasion, Cao Cao placed 20,000 men at Guandu (官渡), a strategic landing point on the shore of the Yellow River which Yuan Shao's troops had to secure en route Xuchang.

With a few diversionary tactics, Cao Cao managed to disorient Yuan Shao's troops as well as kill two of Yuan Shao's most capable generals, Yan Liang and Wen Chou. The morale of Yuan Shao's troops suffered a further blow when Cao Cao launched a stealth attack on the former's food store, Wuchao. Many more of Yuan Shao's men surrendered or deserted than were killed during the ensuing battle. When Yuan Shao eventually retreated back to Ye in the winter of 201, he did so with little more than 800 light cavalry.

The Battle of Guandu shifted the balance of power in northern China. Yuan Shao died shortly after his retreat and his two sons were soon defeated by Cao Cao further in the northern regions of Liaodong. Since then, Cao Cao's dominance in the entirety of northern China was never seriously challenged. The battle has also been studied by military strategists ever since as a classic example of winning against an enemy with far superior numbers.

Battle of Red Cliffs

Traditional site of the Red Cliffs, north of Wulin

The Battle of Chibi (literally, "Red Cliffs") was another classic battle where the vastly outnumbered emerged as victor through strategy. In this battle, however, Cao Cao was on the losing end.

In the winter of 208, Liu Bei and Sun Quan – two warlords who later founded Shu and Wu respectively – formed their first coalition against the southward expansion of Cao Cao. The two sides confronted at the Red Cliffs (northwest of present day Chibi City, Hubei). Cao Cao boasted 830,000 men (historians believe the realistic number was around 220,000), while the Liu-Sun coalition at best had 50,000 troops.

However, Cao Cao's men, mostly from the north, were ill-suited to the southern climate and naval warfare, and thus entered the battle with a disadvantage. Furthermore, a plague that broke out undermined the strength of Cao Cao's army. The decision by Zhou Yu, military advisor to Sun Quan, to use fire also worked effectively against Cao Cao's vessels, which were chained together and thus allowed the fires to quickly spread. (Though in the novel Romance of the Three Kingdoms the chaining of the ships is attributed to Pang Tong, it is most likely that it was done to make stable the ships as his men were suffering from seasickness). A majority of Cao Cao's troops were either burnt to death or drowned. Those who tried to retreat to the near bank were ambushed and annihilated by enemy skirmishers. Cao Cao himself barely escaped the encounter.

Agriculture and education

While waging military campaigns against his enemies, Cao Cao did not forget the basis of society – agriculture and education.

In 194, a locust plague caused a major famine across China. According to the Records of the Three Kingdoms, the people ate each other out of desperation. Without food, many armies were defeated even without fighting. From this experience, Cao Cao saw the importance of an ample food supply in building a strong military. He began a series of agricultural programs in cities such as Xuchang and Chenliu. Refugees were recruited and given wastelands to cultivate. Later, encampments not faced with imminent danger of war were also made to farm. This system was continued and spread to all regions under Cao Cao as his realm expanded. Although Cao Cao's primary intention was to build a powerful army, the agricultural program also improved the living standards of the people, especially war refugees.

By 203, Cao Cao had eliminated most of Yuan Shao's force. This afforded him more attention on construction within his realm. In autumn of that year, Cao Cao passed an order decreeing the promotion of education throughout the counties and cities within his jurisdiction. An official in charge of education matters was assigned to each county with at least 500 households. Youngsters with potential and talents were selected to undergo schooling. This prevented a lapse in the output of intellectuals in those warring years and, in Cao Cao's words, would benefit the people.