Sakaguchi was born in Hitachi, Ibaraki, Japan. He is a graduate student of Mito Senior High School. He went on to study electrical engineering while attending Yokohama National University, but dropped out of the university along with Hiromichi Tanaka mid-course in 1983. In 2001, Sakaguchi founded Mistwalker, which began operation in 2004. In February 2005, it was announced that Mistwalker would be working with Microsoft Game Studios to create two RPGs for the Xbox 360. Still, the company remains independent from console exclusivity. Sakaguchi released the works Blue Dragon in 2006, and Lost Odyssey in 2007 on the Xbox 360, and ASH: Archaic Sealed Heat on the Nintendo DS. He was developing an action-RPG, titled Cry On, until the project was canceled in December 2008.
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