Sephiroth's story begins over three decades before the beginning of FFVII, when a scientist named Professor Gast discovered an inhuman organism dating back thousands of years. He named it Jenova, believing it to be one of the members of an extinct race known as the Cetra, or Ancients. The Cetra had possessed great powers, and so someone authorized Gast to carry out a series of experiments with this organism, hoping to recreate the powers of the Cetra in people living in the present. These experiments were called the Jenova Project.
Working on the project with Gast were two other scientists: a man named Hojo, and a woman named Lucrecia. As a part of the Project, Hojo began injecting the two of them with Jenova's cells, and they conceived a child. Lucrecia wanted very badly to be a mother to the child, but Hojo seemed to think of him as just a part of the Project. When the child was born, he was taken from Lucrecia, and she never once had a chance to hold him.

Twenty-five years later, the child had grown up to be a general in Shinra's elite military force, SOLDIER. Though he was known throughout the world as a war hero with superhuman strength, and the greatest fighter to have ever lived, he never knew his parents or the truth about his past, until he accepted a mission to go to the town of Nibelheim, to investigate a Shinra reactor that was malfunctioning.
With him was another member of SOLDIER, Zack, and two Shinra officers, one of whom was Cloud Strife, who grew up in Nibelheim. With the help of a girl named Tifa, they made their way through Mt. Nibel to the Mako reactor, although a rope bridge collapsed on the way there, and they lost the other Shinra officer. Sephiroth knew there was nothing they could do about it, and so they continued on.

Upon arriving at the reactor, Sephiroth discovered a chamber inside with the name "JENOVA" above it. He had been told that was his mother's name, and she had died shortly after he was born. Then Sephiroth made another startling discovery. The capsules inside the reactor, which were supposed to be used to condense Mako energy, also had living creatures inside them - humans who had been mutated into monsters by the tremendous Mako energy. This discovery, combined with the name JENOVA above the door, sent Sephiroth into a fury. "Am I the same as all these monsters?" he raged, slashing at the mechanisms with his longsword.

When they got back to town, Sephiroth went back to his room at the inn and stayed there. Cloud tried to get him to talk, but he refused. Then he just disappeared. They found him in the library of the Shinra mansion at the edge of town, reading Professor Gast's books. Through these books, Sephiroth learned about Professor Gast and the Jenova Project. Cloud tried to talk to him, but Sephiroth told him he wanted to be alone, and stayed in there reading for days, apparently not stopping to eat or sleep the entire time. When Cloud finally confronted him again, Sephiroth told him to get out of his way, he was going to see his mother.
Cloud ran after him, but by the time he made his way out of the mansion, the town was in flames. Cutting down anyone who tried to stop him, Sephiroth went back to the Mako reactor to open the Jenova chamber.

After that, everyone assumed Sephiroth was dead, but he was just too powerful to die. His physical body was encased in a cocoon-like mass of Materia while his mind remained active. After some time had passed, about five years, he suddenly reappeared. During this time, Jenova had been moved from Nibelheim to the Shinra headquarters building, and it was there that Sephiroth first revealed himself, by freeing her, and then assassinating President Shinra, saying he would not let Shinra have the Promised Land.
The Promised Land was supposedly the one thing the Cetra had searched for, though no one was quite sure what it was. But after he left the Shinra building, Sephiroth was sighted traveling the world, apparently searching for it himself. However, somewhere along the way he learned what very few people knew - Professor Gast had determined that Jenova was not an Ancient, but something else entirely. Jenova was an extraterrestrial being that had actually been what destroyed the Ancients.
Still, he searched for the Promised Land - and found it at a crater on a northern island, where years ago the planet had been injured so badly that its Mako energy, the lifeblood of the planet, was gushing uplike a fountain, trying to repair itself. With all the energy there, Sephiroth could use the Black Materia, the source of ultimate destructive magic, to call a Meteor and injure the planet so badly that all its energy would rush out for him to absorb. And with all that energy, he would become as powerful as a god.

One thing he had not counted on, however... Cloud and Tifa had survived the attack at Nibelheim, and now they were tracking Sephiroth, seeking revenge with their friends. Sephiroth mostly ignored them, and this was his fatal mistake. As he went about his business, Cloud and his friends grew stronger, until after Sephiroth had summoned the Meteor, they challenged him at the bottom of the crater. Though Sephiroth called on all the powers of Jenova and the Black Materia to stop them, they prevailed.
All that was left was the essence of Sephiroth inside the Lifestream, and he drew Cloud in with him for a final duel. However, he'd badly underestimated Cloud, and Cloud was able to finish him off completely. With Sephiroth dead, the energy of the planet and the spell of Holy were left to protect the planet from the impact of Meteor.