Stone was born into a Jewish family, was baptized together with his brother Ernst Eduard Protestant. He studied in Vienna and Tübingen Oriental languages and archeology and a Ph.D. in Old Persian and Indian Studies. In 1884 he went to Britain, where he worked in Oxford and the British Museum. In 1888 he got the job as head of the Oriental College in Lahore. In 1904 he got a job at the Archaeological Survey of India under its director, John Marshall. In 1899 he was in the service of the Indian Government and headed in the years 1900, 1906-1908, 1913-1916 and 1930 four expeditions to Central Asia, which were used mainly for the study of cultures along the Silk Road, and in which he coined the term Serindien. In the 1920s it came to the end of the imperial archeology, finds his last expedition were confiscated in 1930, and with Huang Wenbi a new era began.
Stein was influenced by Sven Hedin in 1899 erschienenem work through deserts of Asia. On the first expedition, his most important discovery was that of the oasis of Dandan Oilik in the Taklamakan desert, where he could find numerous remains. On his third expedition he uncovered Karakhoto.
During the second expedition he discovered in the Mogao Grottoes at Dunhuang an established in the year 868 in China in the wood panel print edition of the Diamond Sutra. The discovery of the oldest with security dated as letterpress product of human history is the main power stone.
The stone collection at the British Library contains Chinese, Tibetan and Tangut manuscripts, Prakrit wooden tablets in documents and in Saka, Uighur, Sogdian and Eastern Turkic language. They come from his last expeditions of the 1920s and 1930s. Stone to collect manuscripts of the Tocharian languages succeeded. He noted numerous archaeological sites, especially in Iran and Balochistan.