Matthew 7:21 might be considered one of the scariest verses in the entire Bible, made all the more terrifying by heretics who use it to peddle their works-based "gospels". But a closer reading of the verse, of course in its correct context and with reference to other relevant Scriptures, we see that the only reason you should ever be afraid of this verse is if you're someone whom Jesus never knew, posing as someone who does great works in His name.
So what does this terrifying verse say? "“Not everyone who says to Me, ‘Lord, Lord,’ shall enter the kingdom of heaven, but he who does the will of My Father in heaven." When cited alone, it's easy to see why this verse might be quite disturbing. It seems to suggest, in stark contrast to basically everything else in Scripture, that our faith is not enough. Maybe Paul was wrong to write "that if you confess with your mouth the Lord Jesus and believe in your heart that God has raised Him from the dead, you will be saved"? (Romans 10:9). Or to follow it up with "For “whoever calls on the name of the Lord shall be saved.”" (Romans 10:13, cf. Acts 2:21). Or maybe, just maybe, there is more to Matthew 7:21 than this one sentence.
When we expand our reading a mere two verses, we find this: "Many will say to Me in that day, ‘Lord, Lord, have we not prophesied in Your name, cast out demons in Your name, and done many wonders in Your name?’ And then I will declare to them, ‘I never knew you; depart from Me, you who practice lawlessness!’" (v22-23). Suddenly we realise, Jesus isn't referring to Christians who have placed their trust in Him, but to those who trust in their own good works. Those who believe they are doing God's will, and are apparently doing a good enough job that they believe they can boast about it, yet Jesus does not consider Himself to have ever known them.
That Phrase "I never knew you" really shows who these people are. If these are really Christians, Jesus would have said "I no longer know you" or "I no longer wish to know you". It's more likely, however, that this statement "I never knew you" applies to those of whom Jesus spoke in verse 15: "“Beware of false prophets, who come to you in sheep’s clothing, but inwardly they are ravenous wolves"
False prophets. People wearing the clothes of Christians, but inwardly, they do not know Christ, they seek only to destroy His people. They claim to know Jesus, they even do good works in His name (much like the Pharisees), but their motives aren't right. And what does Scripture say about such good works? "But we are all like an unclean thing, And all our righteousnesses are like filthy rags; We all fade as a leaf, And our iniquities, like the wind, Have taken us away." (Isaiah 64:6). "But without faith it is impossible to please Him, for he who comes to God must believe that He is, and that He is a rewarder of those who diligently seek Him." (Hebrews 11:6).
And so it is clear, the people who "lose" their salvation in Matthew 7 aren't being denied because they relied on their faith instead of their works, but because the first thing they said to Him, rather than "God, be merciful to me a sinner!" (Luke 18:13) was "Lord, look at all these good works we've done".
Galatians 5:4 tells us "You have become estranged from Christ, you who attempt to be justified by law; you have fallen from grace." Romans 11:6, similarly, tells us "And if by grace, then it is no longer of works; otherwise grace is no longer grace. But if it is of works, it is no longer grace; otherwise work is no longer work." The distinction between grace and works in Scripture could not be made clearer. It's very simple, you are saved by one or the other. If you ask Jesus to judge you by your works, rest assured He will. But your works are simply not good enough to be saved. That's the whole point of salvation. You need to be saved from your works, which bought you death. If, by contrast, you come to Him with nothing but faith, His grace, that is, His unmerited favor, will be extended to you.
So why does Jesus say only those who do the will of the Father will be saved? Simple: Because the will of the Father is not that you should work for salvation, but trust in Christ for it! As we read in the book of John: "And Jesus said to them, “I am the bread of life. He who comes to Me shall never hunger, and he who believes in Me shall never thirst. But I said to you that you have seen Me and yet do not believe. All that the Father gives Me will come to Me, and the one who comes to Me I will by no means cast out. For I have come down from heaven, not to do My own will, but the will of Him who sent Me. This is the will of the Father who sent Me, that of all He has given Me I should lose nothing, but should raise it up at the last day. And this is the will of Him who sent Me, that everyone who sees the Son and believes in Him may have everlasting life; and I will raise him up at the last day.”" (John 6:35-40, emphasis mine).
So, in a way, we can "rephrase" Matthew 7:21 as "“Not everyone who says to Me, ‘Lord, Lord,’ shall enter the kingdom of heaven, but he who (...) sees the Son and believes in Him may have everlasting life; and I will raise him up at the last day.”". Doing the will of God is not primarily about works, for which we can be grateful, as our works are abominable. It is entirely about faith.
Why, then, do we even bother with works? Simple: Because works are a result of faith. Faith is more than mere intellectual assent. It is unfathomable, to the point of being impossible, for someone who has true faith to not do good works. See, as we have established, without faith it is impossible to please Him. But with faith comes the knowledge that we should want to please Him. And of course, once His Holy Spirit has sealed us, we will naturally begin to do so (e.g. Romans 8:9; Philippians 2:12-13).
By far the clearest passage on this topic is Ephesians 2:8-10, which says "For by grace you have been saved through faith, and that not of yourselves; it is the gift of God, not of works, lest anyone should boast. For we are His workmanship, created in Christ Jesus for good works, which God prepared beforehand that we should walk in them." From this, we clearly see that salvation is by faith alone, but once we have received it, that faith will not be alone. We are saved for good works! It's not that we don't need to do good works, we just don't need them for salvation. Rather, we need salvation for good works. Otherwise, how are we better off than a Pharisee, who "have their reward" (Matthew 6:5, 16)? Or even an atheist? There is no good work a believer can do that a false teacher, an apostate, an unbeliever, cannot do, except one: Place their faith in God.
Therefore, if you have indeed done that, if your calling upon the Lord is sincere, if you ask for His mercy knowing you do not deserve it, if you count your works as filthy rags, if you refuse to boast in anything but the Lord, Matthew 7:21 should not even remotely disturb you. Not that you should not care, of course; God saw fit to record it, you should indeed heed it. But you should read it in full knowledge that you are either not among the false teachers of whom it speaks, or that even if you are, even if Jesus does not know you today, today is the day of salvation! Repent, place your faith in Him, and you will be saved. When taken in context, Matthew 7:21 is a comfort to the faithful, for we do the will of God, unto the saving of our souls.