In 1986, Peñalosa was named economic adviser to Colombian president Virgilio Barco Vargas and from 1990 to 1991, he was a member of the Colombian Chamber of Representatives. He was elected mayor of Bogotá in 1998 and served until 2001. During his tenure, he developed five megaprojects: the bank of lands, the district’s system of Parks (including Bogotá's Bike Paths Network), the district’s system of libraries, the Transmilenio mass transit system, and road construction and maintenance.

He holds a bachelor degree in economics and history from Duke University, USA, and Masters degree in management and public administration from the Institut International d’Administration Publique and the University of Paris II in Paris.

He has also worked as a journalist and consultant on urban and transportation policy.

He has researched and is writing a book on a new urban-development model for the Third World, which covers fields such as transportation, land use and housing for the poor, pollution abatement, and public space.