In 1999, he was voted the Best Foreign Player in Spanish Football over the previous 25-year period and in April 2000 he was knighted, receiving the Order of the Dannebrog. In November 2003, to celebrate UEFA's Jubilee, he was selected as the Golden Player of Denmark by the Danish Football Association; their most outstanding player of the past 50 years. He was officially named the best Danish footballer of all time by the Danish Football Association (DBU) in November 2006.

After ending his playing career, Laudrup took up coaching, and became assistant manager of the Danish national team. He got his first manager job at former club Brøndby in 2002, whom he guided to the 2005 Danish Superliga championship. He chose not to extend his contract with Brøndby in May 2006. In 2007, Brøndby decided to name a new lounge at the stadium "The Michael Laudrup Lounge", with Laudrup's approval. He subsequently took over as coach of Getafe, Madrid's third club, and continued his coaching career with notable success there. He brought the club comparative success in the Copa del Rey and UEFA Cup, and the team's attacking style brought plaudits.

Born in Frederiksberg, Copenhagen, Michael Laudrup started playing football in father Finn Laudrup's childhood club Vanløse. When Finn Laudrup became player/coach of small time club Brøndby IF in 1973, the family moved to Brøndby and both Michael and Brian Laudrup started playing for the club as well. Michael followed his father to the top-flight Danish 1st Division club Kjøbenhavns Boldklub in 1976, while Brian remained at Brøndby.

He made his senior debut for KB in 1981, and made his debut for the Danish under-19 national team in February 1981. In all, he scored a combined total of 14 goals in 25 games at various youth levels. He went back to play for Brøndby in 1982, where his father had ended his career in 1981, contributing to the promotion of Brøndby to the 1st Division.

At Brøndby, Michael Laudrup scored two goals in the club's 1st Division debut game, as fellow promoted team Boldklubben 1909 were beaten 7–1. Laudrup scored 15 league goals in 1982, and ended the season as the third top goal scorer of the 1st Division. His accomplishments earned him the 1982 Danish Player of the Year award. He played part of the 1983 season for Brøndby, and scored 9 goals, before he was sold to defending Serie A champions Juventus from Italy in June 1983. It was the then biggest transfer deal in Danish football, worth around $1 million.

Under restriction of a maximum of two foreign players in the team, of which the club had Polish midfielder Zbigniew Boniek and Michel Platini, Juventus initially lent him to newly-promoted Rome club Lazio for a single season. He scored two goals in his Serie A debut, even though Lazio lost 2–4 to Verona. In his first year at the club, Lazio narrowly avoided relegation, but as Juventus wanted to keep Boniek and Platini, Laudrup stayed a second year at Lazio. Lazio started the 1984–85 season badly, and they finished dead last and were relegated to Serie B, with Laudrup scoring just a single goal that season.

Laudrup returned to the Juventus side in 1985 to replace Zbigniew Boniek, playing alongside Michel Platini. In his first year at the club, he won the 1985–86 Serie A championship, as well as the Intercontinental Cup trophy, and Laudrup was once again named 1985 Danish Player of the Year. The following season was no success for Laudrup, who suffered from injuries, like large parts of the Juventus team, including Platini. When Platini retired in 1987, Laudrup was expected to lead the team in his place, playing alongside newly-bought Welsh forward Ian Rush. But the 23-year old failed to live up to Platini's standards, and did not score any goals, despite playing all 30 games of the 1987–88 season.

In 1989, he joined FC Barcelona of Spain where he enjoyed tremendous success, with former Dutch national team captain Johan Cruijff the coach. Michael Laudrup was one of the restricted three foreign players allowed in the team, alongside Dutch defender Ronald Koeman and Bulgarian striker Hristo Stoichkov, who were the pillars of Barça coach Johan Cruijff's Dream Team. The team won four consecutive La Liga championships from 1991 to 1994, as well as the 1991–92 European Cup, and Laudrup was twice elected the best player of the year in Spain during his Barcelona years. When Barça hired a fourth foreign star player, Brazilian striker Romário, in 1994 it meant the four foreigners would rotate as the three foreign players allowed in each match, and when Laudrup wasn't selected for the 1994 European Cup final 0–4 loss to Milan, his time at Barcelona was over.

In 1994, he completed a controversial move from Barça to Real Madrid after he fell out with Johan Cruyff. Laudrup went on to guide Real Madrid in a championship winning season that would end the Barça stranglehold, making Laudrup the only player ever to win the Spanish league five times in a row playing for two different clubs. After the initial success at Real, a lacklustre season would be in store for the club. Despite only playing two seasons at Real Madrid, Laudrup was voted the 12th best player in Real history in an internet survey by Spanish newspaper Marca when the club celebrated its 100th anniversary in 2002.

While playing with Barcelona he participated in the 5–0 victory over rivals Real Madrid in the 1993–94 season. The following season while playing for Real Madrid he aided in the revenge beating that Madrid gave Barça, the final score also being 5–0.