Foucault is perhaps most known for his unique perspective on how to understand power. Foucault traces a shift from sovereign power—the traditional model of power in which power is held by an individual such as a king—to a more nebulous, decentralized form of power. Key to Foucault's conception of power is the idea that individuals do not hold power. Rather, power acts on individuals and exists in the relationships between them and in institutions.

One of the questions that serves as the backdrop for the work of Foucault and other politically radical social theorists in his era is how to understand the failure of twentieth-century revolutions to produce the kind of radical change they promised. Part of how Foucault answers this question is by noting that deposing a monarch from power matters little if that monarch as an individual does not hold real power. If, instead, power rests in institutions, in knowledge, in discourses, and so on, then we can understand how replacing a monarch might change little. This perspective also gives support to the argument that which specific politicians are elected to lead the United States matters little and the general class structure, racial stratification, and American imperialism are constants. Additionally, Foucault argues that while most people think of power as repressive (that is, power can act to prevent individuals from acting on their desires), it should instead be understood as productive (that is, power produces the desires and ideas that shape individuals lives).

Foucault is particularly interested in epistemology—that is, the study of how ideas are produced. Foucault argues that power produces knowledge. Putting himself at odds with traditional Western frameworks that position knowledge as objective, Foucault pays great attention to the ways in which structures of power affect the production of knowledge. We can think of this at the micro level in terms of the way in which governments and corporations (with their own agendas) will often fund research, allowing them to influence what kinds of ideas are created. We can also think about the way in which the power of a teacher and their ability to wield power over these students (for example by choosing what grades they receive, whether or not to write them letters of recommendation, etc.) shapes the ideas their students conceive and develop. On a larger scale, we can see the way in which imperialist and colonial systems of knowledge suppress Indigenous systems of knowledge, for example, the history in North America of forcing Indigenous children to go to Western boarding schools where white people had the power to control what ideas they were taught and where they could be forcibly separated from Indigenous systems of knowledge.

Foucault's ideas on knowledge and power lead him to radical conclusions about the nature of individuality and identity. Foucault argues that individuals and their identities are produced by discourses of power (discourses here meaning, roughly, the kinds of macro-level conversations backed by power that determine the dominant ideas on a topic; for example, the discourses of psychology that determine the way individuals are constructed as "crazy"). Foucault also argues that the kinds of identities based on sexuality that arose throughout the mid-twentieth century were not based in some essential, absolute truth about individuals, but rather were products of political power. For example, the "born this way" understanding of same-sex attraction and transgender existence suggests that at an essential level individuals are gay or straight, cisgender or transgender. A Foucauldian perspective might note that throughout history and across culture, gender and sexuality have been understood in a myriad of ways. The idea that same-sex attraction is limited to a specific class of people and that those people are defined by it is in no way a constant.

While many of these ideas might suggest that power is an all-determining force, Foucault is surprisingly optimistic about the possibilities of individuals resisting power. He famously claims in History of Sexuality Volume I that "where there is power, there is resistance." Foucault wants readers to be mindful of the fact that we do not exist in a vacuum, and he argues against the idea that there exists any sort of authentic, true self that is separate from the ways power acts on us. He sees power as acting in all kinds of directions, varying across contexts, and where power acts in one direction, resistance acts in opposing directions.