Born Arthur Jacob Arshawsky in New York City, Shaw grew up in New Haven, Connecticut, where, according to his autobiography his natural introversion was deepened by local antisemitism. Shaw began learning the saxophone when he was 13 years old, and by the age of 16, he switched to the clarinet and left home to tour with a band. Returning to New York, he became a session musician through the early 1930s. From 1925 until 1936, Shaw performed with many bands and orchestras, including those of Johnny Caverello and Austin Wylie. In 1929 and 1930 he played with Irving Aaronson's Commanders, where he was exposed to symphonic music, which he would later incorporate in his arrangements.

Shaw first gained critical acclaim with his "Interlude in B-flat" at a swing concert at the Imperial Theater in New York in 1935. During the swing era, Shaw's big band was popular with hits like "Begin the Beguine" (1938), "Stardust" (with a trumpet solo by Billy Butterfield), "Back Bay Shuffle", "Moonglow", "Rosalie" and "Frenesi". He was an innovator in the big band idiom, using unusual instrumentation; "Interlude in B-flat", where he was backed with only a rhythm section and a string quartet, was one of the earliest examples of what would be later dubbed third stream.

In addition to hiring Buddy Rich, he signed Billie Holiday as his band's vocalist in 1938, becoming the first white bandleader to hire a full-time black female singer to tour the segregated Southern US. However, after recording "Any Old Time" she left the band due to hostility from audiences in the South, as well as from music company executives who wanted a more "mainstream" singer. His band became enormously successful, and his playing was eventually recognized as equal to that of Benny Goodman: longtime Duke Ellington clarinetist Barney Bigard cited Shaw as his favorite clarinet player. In response to Goodman's nickname, the "King of Swing", Shaw's fans dubbed him the "King of the Clarinet." Shaw, however, felt the titles were reversed. "Benny Goodman played clarinet. I played music," he said.

Shaw prized innovation and exploration in music more highly than popular success and formulaic dance music, despite a string of hits which sold more than 100 million records. He fused jazz with classical music by adding strings to his arrangements, experimented with bebop, and formed "chamber jazz" groups that utilized such novel sounds as harpsichords or Afro-Cuban music.

The long series of musical groups Shaw formed included such talents as vocalists Billie Holiday, Helen Forrest and, Mel Tormé; drummers Buddy Rich and Dave Tough, guitarists Barney Kessel, Jimmy Raney, and Tal Farlow and trombonist-arranger Ray Conniff, among countless others. He composed the morose "Nightmare", with its Hassidic nuances, for his personal theme, rather than more approachable songs. In a televised interview of the 1970s, Shaw derided the often "asinine" songs that bands were compelled to play night after night. In 1994, he told Frank Prial (The New York Times), "I thought that because I was Artie Shaw I could do what I wanted, but all they wanted was 'Begin the Beguine.' "

During World War II, Shaw enlisted in the United States Navy and later formed a band, which served in the Pacific theater (similar to Glenn Miller's wartime band in Europe). After 18 months playing for Navy personnel (sometimes as many as four concerts a day in battle zones, including Guadalcanal), Shaw returned to the U.S. in a state of physical exhaustion, receiving a medical discharge. In the late 1940s, Shaw performed classical music at Carnegie Hall and with the New York Philharmonic under Leonard Bernstein.

Like Benny Goodman and other leaders of big bands, Shaw fashioned a small group from within the band. He named it the Gramercy Five after his home telephone exchange. Band pianist Johnny Guarneri played a harpsichord on the quintet recordings and Al Hendrickson played an electric guitar, which was unusual in jazz recordings of the time. Trumpeter Roy Eldridge later became part of the group, succeeding Billy Butterfield. The Gramercy Five's biggest hit was "Summit Ridge Drive". A CD of The Complete Gramercy Five sessions was released in 1990.

Throughout his career, Shaw would take sabbaticals, quitting the music business. This included studying advanced mathematics, as cited in Karl Sabbagh's The Riemann Hypothesis. His first interregnum, at the height of his success, was met with disbelief by booking agents. They predicted that Shaw would not only be abandoning a million-dollar enterprise but that nightclub and theater owners would sue him for breach of contract. Shaw's offhand response was, "Tell 'em I'm insane. A nice, young American boy walking away from a million dollars, wouldn't you call that insane?"

In 1954, Shaw stopped playing the clarinet, citing his own perfectionism, which, he later said, would have killed him. He explained to a reporter, "In the world we live in, compulsive perfectionists finish last. You have to be Lawrence Welk, or, on another level, Irving Berlin, and write the same kind of music over and over again. I'm not able to do that." He spent the rest of the 1950s living in Europe.

In 1981, he organized a new Artie Shaw Band with clarinetist Dick Johnson as bandleader and soloist. Shaw himself guest conducted from time to time, ending his self-imposed retirement.

After Canadian filmmaker Brigitte Berman interviewed Shaw, Hoagy Carmichael, Doc Cheatham and others for her documentary film Bix: Ain't None of Them Play Like Him Yet (1981) about Bix Beiderbecke, she went on to create an Academy Award-winning documentary, Artie Shaw: Time Is All You've Got (1985), featuring her interviews with Shaw, Buddy Rich, Mel Tormé, Helen Forrest and others. Later in 2003, along with members of his original bands and other music professionals, Shaw was extensively interviewed by Russell Davies for the BBC Television documentary, Artie Shaw ... Quest for Perfection, which became his last major interview.

In 1991, Artie Shaw's band library and manuscript collection was donated to the University of Arizona. In 2004, he was presented with a Grammy Lifetime Achievement Award.

A self-proclaimed "very difficult man," Shaw was married eight times: Jane Cairns (1932—33); Margaret Allen (1934—37); actress Lana Turner (1940); Betty Kern (1942—43), the daughter of songwriter Jerome Kern; actress Ava Gardner (1945—46); Forever Amber author Kathleen Winsor (1946—48); actress Doris Dowling (1952—56); and actress Evelyn Keyes (1957—85). He had one son with Betty Kern, and another son, Jonathan Shaw (a well-known tattoo artist who founded Fun City Tattoo), with Doris Dowling.

In 1946, Shaw was present at a meeting of the Independent Citizens' Committee of the Arts, Sciences and Professions. Olivia de Havilland and Ronald Reagan, part of a core group of actors and artists who were trying to sway the organization away from communism, presented an anti-communist declaration which, if signed, was to run in newspapers. There was bedlam as many rose to champion the communist cause, and Artie Shaw began praising the democratic standards of the Soviet constitution. In 1953, Shaw was brought up before the House Un-American Activities Committee for his leftist activities. The committee was investigating a peace activist organization, the World Peace Congress, which it considered a communist front.

He was a precision marksman, ranking fourth in the United States in 1962, as well as an expert fly fisherman. In his later years, Shaw lived and wrote in the Newbury Park section of Thousand Oaks, California. Shaw had long suffered from adult onset diabetes and eventually died of complications of the disease at age 94. In 2005, Shaw's eighth wife, Evelyn Keyes, sued Shaw's estate, claiming that she was entitled to one-half of Shaw's estate pursuant to a contract to make a will between them. In July 2006, a Ventura, California jury unanimously held that Keyes was entitled to almost one-half of Shaw's estate, or $1,420,000.

Shaw did many big band remotes, and he was often heard from the Blue Room of New York's Hotel Lincoln. It was the location of his only regular radio series as headliner. Sponsored by Old Gold cigarettes, Shaw broadcast on CBS from November 20, 1938 until November 14, 1939.

At the height of his popularity, Shaw reportedly earned $60,000 per week. For a comparison, George Burns and Gracie Allen were each making US $5,000 per week during the year the Artie Shaw Orchestra provided the music for their radio show. He also acted on the show as a love interest for Gracie Allen.

Shaw's recording of "Nightmare" was used as the theme soundtrack for BBC Radio's adaptation of the Philip Marlowe novels by Raymond Chandler.

Shaw made several musical shorts in 1939 for Vitaphone and Paramount Pictures, and he portrayed himself in the Fred Astaire film Second Chorus (1940), which featured Shaw and his orchestra playing "Concerto for Clarinet." The film brought him two Oscar nominations, for Best Score and Best Song ("Love of My Life"). He collaborated on the love song "If It's You" sung by Tony Martin in the Marx Brothers' film, The Big Store (1941). In 1950, he was a mystery guest on What's My Line?, and during the 1970s he made appearances on The Mike Douglas Show and The Tonight Show.

Many of his recordings have been used in motion pictures. His recording of "Stardust" was used in its entirety in the closing credits of the film "The Man Who Fell to Earth". Also, Martin Scorsese used the Shaw theme song, "Nightmare," in his Academy Award-winning Howard Hughes biopic, The Aviator.

He credited his time in the Navy as a period of renewed introspection. He entered psychoanalysis and began to pursue a writing career. His autobiography, The Trouble With Cinderella: An Outline of Identity was published in 1952 (with later reprint editions in 1992 and 2001). Revealing downbeat elements of the music business, Shaw explained that "the trouble with Cinderella" is "nobody ever lives happily ever after." He turned to semi-autobiographical fiction with the three short novels in I Love You, I Hate You, Drop Dead! (1965, reprinted in 1997), which prompted Terry Southern's comment: "Here is a deeply probing examination of the American marital scene. I flipped over it!" Shaw's short stories, including "Snow White in Harlem," were collected in The Best of Intentions and Other Stories (1989). He worked for years on his 1000-page autobiographical novel The Education of Albie Snow, but the three-volume work remains unpublished. Currently, through Curtis International Associates, the Artie Shaw Orchestra is still active.

Shaw is mentioned in the CBS television show "NCIS" by Ernie Yost, the fictional Medal of Honor recipient, in the episode "Call of Silence."