Growing up in Indiana, Woodson felt the Hoosier Hysteria that permeated the state helped prepare him for a career in basketball. He said, "Every yard had courts, little basketball hoops in the yard. If you didn't have it, you had neighbors two doors down that had it. You had parks in every area of town where you could go get a pickup game. Had rec centers where you could go play. It was a place to go learn your craft."  He was also able to practice with a large number of talented basketball players in the Indianapolis area, including professionals such as George McGinnis, Roger Brown, and Rick Mount. According to Woodson, playing in Indiana meant "you had to be able to pass, and shoot, and dribble, and play without the basketball, you know, the motion offense. That was Indiana basketball. And Bob Knight is the one who really instilled a lot of the fundamentals and how high school coaches taught their teams." 
Woodson elected to play college basketball for Bob Knight and the Indiana University Hoosiers. During one recruiting visit by Knight where Woodson's high school coach, his mother, and his pastor were all present, Knight got into a heated exchange because Woodson's high school coach was not convinced Woodson would fit into Indiana's system. However, according to Woodson, "I wanted to go somewhere where I could play, and where I knew I could get a great education, and my family didn't have to travel far to see me. So it was perfect. And I thought I was playing for the best coach in the country at that time."
In Woodson's junior year, the 1978-79 season, he was the leading scorer on the Hoosier team that won the 1979 NIT Tournament. The 1979-80 Hoosiers, led by Woodson and Isiah Thomas, won the Big Ten championship and advanced to the 1980 Sweet Sixteen. Woodson finished his career at Indiana with 2,062 points.
Woodson was selected 12th overall by the New York Knicks in the 1980 NBA Draft and played in the league from 1980 until 1991. He spent two years in New York, before being traded to the New Jersey Nets. After playing seven games with the Nets, he was again traded to the Kansas City Kings. He enjoyed great success with the Kings, leading the team with 18.2 points per contest during a 1983 playoff run. He averaged 12.2 points over his career with the Kings (moving with the team to Sacramento). After success with that franchise, he finished his career by moving between several teams, making contributions in New Jersey, Los Angeles (with the Clippers), Houston, and Cleveland.
Woodson served eight seasons as an assistant coach with the Milwaukee Bucks (1996-97 through 1998-99), Cleveland Cavaliers (1999-2000 through 2000-01), Philadelphia 76ers (2001-02 through 2002-03) and Detroit Pistons (2003–04). With the Pistons during the 2003-04 season he helped win an NBA Championship under head coach Larry Brown. Woodson was known for getting the most of defensive players, allowing teams coached by him and Brown to limit opponents to just under 42% shooting.
For the 2004-05 season Woodson took over as a head coach of the Atlanta Hawks, a position previously held by Terry Stotts. During his tenure with the Hawks from 2004-05 through 2009-10 he compiled a 206-286 (.419) record. He guided the Hawks to the NBA Playoffs in each of his last three seasons (including 2007-08, ending Atlanta's eight-year Playoff drought), and into the Eastern Conference Semifinals in his last two seasons, compiling an overall Playoff mark of 11-18 (.379). The Hawks increased their win total in each of Woodson's six seasons in Atlanta, going from 13-69 in 2004-05 to 53-29 in 2009-10.
Woodson's 206 career wins are fourth-best in Hawks franchise history, trailing only Richie Guerin (327), Mike Fratello (324) and Hall of FamerLenny Wilkens (310). However, after the Hawks lost their second round playoff series with the Orlando Magic 0-4 in 2010, general manager Rick Sund announced that the team would not attempt to re-sign Woodson, whose contract expired on May 17, 2010.
On August 29, 2011, the New York Knicks announced that Mike Woodson was hired as an assistant coach under head coach Mike D'Antoni. On March 14, 2012, Woodson was named interim head coach after D'Antoni's resignation. Woodson was named the full-time head coach of the Knicks on May 25, 2012. The Knicks ended the season strong under Mike Woodson, going 18-6 for an overall season record of 36-30, though they would lose 4-1 against the Miami Heat.
In the 2012-13 season the Knicks under Woodson compiled a record of 54-28 and secured the second seed in the Eastern Conference. They reached the Eastern Conference Semifinals, where they lost to the Indiana Pacers in six games.