Born in Leipzig in 1870 as the son of Wilhelm Liebknecht and the brother of Karl Liebknecht, Theodor Liebknecht studied law and worked as a lawyer in Berlin from 1899 on, becoming politically active after his brother's murder in January 1919.
Liebknecht was a member of the USPD; opposed to the merger with the KPD and the joining of the Komintern but also to the reunification of the party with the SPD, he continued the USPD as an independent party with Georg Ledebour until its merger into the Sozialistische Arbeiterpartei Deutschlands (SAPD, "Socialist Worker's Party of Germany") in 1931. In 1924, he was involved in the split of the Sozialistischer Bund together with Georg Ledebour.
A right-wing member of the SAPD, he was opposed to the introduction of Leninist schemes of organization into the party; following the Nazi rise to power, he emigrated to Basel, Switzerland in 1933 and was later emplyed by the International Institute of Social History in Amsterdam from 1936 to 1939.
Liebknecht was also a supporter of the International Working Union of Socialist Parties (IWUSP); he died in Altendorf, near Hanover, Germany, in 1948.