Niese was born in Burg, on the island of Fehmarn, then part of the German Confederation but ruled by King Frederick VII of Denmark.
His father was Emil August Niese, pastor in the town, and his mother was born Benedicte Marie Matthiessen.
He was educated at the Domgymnasium in Schleswig and then from 1867 at Bonn and Kiel, studying under Alfred von Gutschmid.
After teaching for a short time in a secondary school in Flensburg, he travelled in Italy and France.
Niese is best known for his then definitive editio maior of the works of the Jewish historian Josephus (Weidmann, Berlin, 1885–1895), based on a detailed study of the best manuscripts available.