Leopold Blauensteiner was the son of a carpenter of the same name and the latter's wife Johanna, née Toscano del Banner. After attending the classical language grammar school at Melk Abbey in Lower Austria, he studied painting with Christian Griepenkerl at the Academy of Fine Arts in Vienna from 1898 to 1903 as well as a few semesters of art history at the University of Vienna. He also took private lessons with the graphic artist and stage designer Alfred Roller. In 1904 he married Frieda (Friederike) Berger, with whom he was to have three sons (Kurt, Hans Klaus and Peter Paul). From 1904 he participated in exhibitions of the Secession artist association, and in 1908 he was active for the Kunstschau, a showcase of Viennese modernism at the time. Blauensteiner also served as a board member of the Hagenbund (1911–1921), which he left, however, "because of the prevalence of Jewish elements", as well as the artists' association Die Hand. From 1925 he worked as curator of secular art monuments in Melk (Lower Austria) on behalf of the Federal Monuments Office. As a painter he created mainly landscapes and portraits, larger exhibitions took place in the Secession (1921) as well as in the Künstlerhaus (1930) in Vienna. In 1927 Blauensteiner received the Austrian State Prize, in 1932 the State Prize Medal and the professional title of professor. He was a member of the then Genossenschaft bildender Künstler Wiens (Künstlerhaus) from 1933 and its president from the end of 1937 until 1941. Simultaneously, he pursued his illegal activities in the field of National Socialist cultural policy, partly in close collaboration with the architect Marcel Kammerer until March 1938. A member of the NSDAP since 1932 and cell leader of the "Kampfbund" in the Künstlerhaus, he became a consultant for fine arts in the NSDAP's illegal regional cultural office in 1936, and from 1937 chairman of the Bund deutscher Maler Österreichs (Association of German Painters of Austria). He was also a member of the association Gemeinschaft Wiener Kunstfreunde (Community of Viennese Friends of Art), which was dissolved in 1936 because of its National Socialist activities, and a proponent of the "Deutsch-sozialer Volksbund" (German-Social Association), which called for the legalization of the NSDAP in 1937.

After the "Anschluss" of Austria in March 1938, Blauensteiner rose to the position of provisional director and, from June 1938, commissioner of all institutions for fine arts in Austria, and from August 1939 he was regional director of the Reich Chamber of Fine Arts for the Reichsgau of Vienna. With these functions he held a key position in the Gleichschaltung (enforced conformity) of the fine arts as well as the "de-Jewification" of the art and antiques trade. In May 1939 Blauensteiner opened the exhibition "Degenerate Art" in the Künstlerhaus, which had first been shown in Munich in 1937. From May 1939 to March 1945, he was a councilor in the pseudorepresentation that had replaced the Vienna Municipal Council and the Vienna Parliament, which had already been dissolved in 1934, respectively. Two of Leopold Blauensteiner's three sons (the art historian Kurt Blauensteiner and the medical specialist Hans Klaus Blauensteiner) fell in the Second World War.

After Blauensteiner's arrest by the Soviet occupation forces on 19, April 1945, People's Court proceedings were initiated against him in June for "illegality" and "qualified illegality" (§§ 10 and 11 of the Prohibition Act). Blauensteiner presented himself as a critic of the National Socialist regime and as an Austrian patriot who, during the Nazi period, had turned against the abolition of specifically Austrian institutions, such as the art schools, who had supported Austrian artists and the domestic art trade, had fought against the export of paintings by Ferdinand Waldmüller to the "Altreich" and the establishment of branches of German companies in Vienna, and had helped several racially or politically persecuted persons. His defense strategy proved successful: In July 1946, a few months before his death, the preliminary investigation against him was dropped in line with § 109 of the Code of Criminal Procedure. However, the Council Chamber of the Vienna Regional Court for Criminal Matters decided that Blauensteiner was not entitled to compensation for the pretrial detention because the suspicion against him had not been completely disproved.