He began studying the life and works of the modern Persian writer, Sadeq Hedayat, and that of the Prime Minister of Iran in the early 1950s, Mohammad Mosaddeq, while still a faculty member in the department of economics at the University of Kent at Canterbury.

Having taught economics at universities in Britain and other countries for eighteen years, he took voluntary retirement in 1986 to devote his entire time to Iranian studies.

In recent years, he has been teaching and writing on classical Persian literature, in particular the 13th-century poet and writer, Sa‘di.

He is editor of the International Journal of Persian Literature, and co-editor of Routledge's Iranian studies book series.

Since 1986, Katouzian has been teaching Persian literature and Iranian history at the University of Oxford and has organized two international conferences: the Hedayat Centenary, at the Middle East Centre, St. Antony's College, March 2003, and Iran Facing the New Century, at Wadham College, April 2004.

He has published extensively on twentieth-century Iranian history and has been responsible for a number of cases of historical revisionism, for example that the 1921 coup in Iran was not engineered by the British government; that the Anglo-Persian Agreement of 1919 was not intended to turn Iran into a British protectorate; and that the Iranian-Azarbaijani political leader, Sheikh Mohammad Khiyabani was not a separatist, was not pro-Bolshevik and was not opposed to the 1919 agreement.

He has developed and discussed this theory more extensively in the article, "The Short-Term Society, A Comparative Study in the Long-Term Problems of Political and Economic Development in Iran", published in Middle Eastern Studies, 40, 1, 2004 and reprinted in his IRAN, Politics, History and Literature, 2013.