A son of the manse, Douglas was educated at the University of Glasgow and trained for the ministry at the Free Church Divinity School. During his final year he was recruited by William Burns, the pioneer missionary of the Presbyterian Church in England, for work in China. Ordained in 1855, he worked throughout his life in south Fukien (Fujian), the first missionary to be supported by the Scottish Auxiliary of the English Presbyterian Mission.
He devoted himself, for some periods without any missionary colleagues, to extending and developing a self-supporting, self-propagating Chinese church, training church workers, and producing the standard Chinese-English dictionary of the Amoy language, published in 1873. When he died, the single congregation at Pehchuia (Baichuan) had grown into a church of twenty-five congregations organized as a presbytery that was predominantly Chinese in membership. After visiting Taiwan in 1860 and during his first furlough in 1862, he persuaded the foreign missions committee of the Presbyterian Church in England to undertake work there. In 1863 he again visited Taiwan, accompanied by J. L. Maxwell, who in 1865, following language study in Amoy, became its first resident English Presbyterian missionary.
The University of Glasgow honored Douglas with an LL. D. for his Amoy dictionary, and his British missionary colleagues were unanimous in choosing him as one of the two joint chairmen (British and American) of the 1877 Shanghai Missionary Conference. Soon after that conference he died of cholera at the age of 47, with the reputation of never having wasted a moment of his life.