Bruno Schulz was the son of cloth merchant Jakub Schulz and Henrietta, née Kuhmerker. At a very early age, he developed an interest in the arts. He studied at a gymnasium in Drohobycz from 1902 to 1910, and proceeded to study architecture at Lviv University. In 1917 he briefly studied architecture in Vienna. After World War I, the region of Galicia, which included Drohobycz, returned to Poland. In the postwar period, Schulz came to teach drawing in a Polish gymnasium, from 1924 to 1941. His employment kept him in his hometown, although he disliked his profession as a schoolteacher, apparently maintaining it only because it was his sole means of income.

The author nurtured his extraordinary imagination in a swarm of identities and nationalities; a Jew who thought and wrote in Polish, was fluent in German, and immersed in Jewish culture, though unfamiliar with the Yiddish language. Yet there was nothing cosmopolitan about him; his genius fed in solitude on specific local and ethnic sources. He preferred not to leave his provincial hometown, which over the course of his life belonged to four countries; the Austro-Hungarian Empire, Poland, the Soviet Union, and Ukraine. His adult life was often perceived by outsiders as that of a hermit, uneventful and enclosed.

Schulz seems to have become a writer by chance, as he was discouraged by influential colleagues from publishing his first short stories. His aspirations were refreshed, however, when several letters that he wrote to a friend, in which he gave highly original accounts of his solitary life and the details of the lives of his fellow citizens, were brought to the attention of the novelist Zofia Na?kowska. She encouraged Schulz to have them published as short fiction, and The Cinnamon Shops (Sklepy Cynamonowe) was published in 1934; in English-speaking countries, it is most often referred to as The Street of Crocodiles, a title derived from one of the chapters. This novel-memoir was followed three years later by Sanatorium Under the Sign of the Hourglass (Sanatorium Pod Klepsydr?). The original publications were fully illustrated by Schulz himself; in later editions of his works, however, these illustrations are often left out or are poorly reproduced. He also helped his fiancée translate Franz Kafka's The Trial into Polish, in 1936. In 1938, he was awarded the Polish Academy of Literature's prestigious Golden Laurel award.

The outbreak of World War II in 1939 caught Schulz living in Drohobycz, which was occupied by the Soviet Union. There are reports that he worked on a novel called The Messiah, but no trace of this manuscript survived his death. Following the German invasion of the Soviet Union, as a Jew he was forced to live in the ghetto of Drohobycz, but he was temporarily protected by Felix Landau, a Gestapo officer who admired his drawings. During the last weeks of his life, Schulz painted a mural in Landau's home in Drohobycz, in the style with which he is identified. Shortly after completing the work, Schulz was bringing home a loaf of bread when he was shot and killed by a German officer, Karl Günther, a rival of his protector (Landau had killed Günther's "personal Jew," a dentist). Over the years his mural was covered with paint and forgotten.

Schulz's body of written work is rather small: The Street of Crocodiles, Sanatorium Under the Sign of the Hourglass and a few other compositions that the author did not add to the first edition of his short story collection. A collection of Schulz's letters were published in Polish in 1975, entitled The Book of Letters, and a number of critical essays Schulz wrote for various newspapers are also available. Several of Schulz's works have been lost, including some short stories from the early 1940s that the author had sent to be published in magazines, and his final unfinished novel The Messiah.

A new edition of Schulz's stories was published in 1957, leading to French, German, and later English translations.

• The Street of Crocodiles. New York: Walker and Company, 1963. (A translation by Celina Wieniewska of Sklepy Cynamonowe (Cinnamon Shops).)
• Sanatorium Under the Sign of the Hourglass New York: Penguin, 1988. (A translation by Celina Wieniewska of Sanatorium Pod Klepsydr?, with an introduction by John Updike.) ISBN 0-14-005272-0
• The Complete Fiction of Bruno Schulz. New York: Walker and Company, 1989. (Combination of the prior two collections.) ISBN 0-8027-1091-3

In February 2001, after a long search, Benjamin Geissler, a German documentary filmmaker, discovered the mural Schulz had created for Landau. The meticulous task of restoration was begun by Polish conservation workers, who informed Yad Vashem about the findings. In May of that year representatives of Yad Vashem in Israel came to Drohobycz to examine the mural. They removed five fragments of the mural, which had already been restored, smuggled them out of the country, and transported them to Jerusalem. Geissler has documented the search, the finding and restoration, as well as the destruction of the mural in the film entitled “Finding Pictures”.

International controversy ensued. Yad Vashem claims that parts of the mural were legally purchased, but the owner of the property said that no such agreement was made, and Yad Vashev did not obtain permission from the Ukrainian Ministry of Culture despite legal requirements. The fragments left in place by Yad Vashem have since been restored and, after touring Polish museums, are now part of the collection at the Bruno Schulz Museum in Drohobycz.

This gesture by Yad Vashem precipitated much public outrage in Poland and Ukraine, where Schulz is a beloved figure.

[F]or Poles in particular, Yad Vashem’s actions... suggest that dying because one is a Jew negates the relevance of having lived largely as a Pole...and, harsher still, that Jewishness and Polishness have been deemed fundamentally irreconcilable. In response to mounting international outrage, Yad Vashem posted a public statement on its Website...one of very few official comments on the incident...asserting a "moral right" to Schulz’s work.

The issue reached a settlement in 2008 when Israel recognized the works as "the property and cultural wealth" of Ukraine, and Ukraine's Drohobychyna Museum agreed to lend the works to Yad Vashem as a long-term loan. In February 2009, Yad Vashem opened to the public its display of the Schulz murals which it had removed from Drohobycz.

Schulz's work has provided the basis for two films. Wojciech Has's The Hour-Glass Sanatorium (1973) draws from a dozen of his stories and emphasizes the dreamlike quality of his writings. A 21 minute stop-motion animated 1986 film, Street of Crocodiles, by the Quay Brothers was inspired by Schulz's writing.

A play based on Cinnamon Shops was performed at the Jewish Culture Festival in Kraków in 2008 — a theater performance based on a novel by Bruno Schulz, directed by Frank Soehnle, performed by the Puppet Theater from Bia?ystok.

A physical theatre piece based on The Street of Crocodiles was staged by Theatre de Complicite in collaboration with the National Theatre, London in 1992.

In 2006, as part of a site-specific series in an historic Minneapolis office building, Skewed Visions created the multimedia performance/installation The Hidden Room. Intertwining aspects of Schulz's life with his writings and drawings, the piece evoked the many-layered stories of his life and imagination through movement, imagery and highly stylized manipulation of objects and puppets.

"From A Dream to A Dream", a performance based on the writings and art of Bruno Schulz, was created collaboratively by Hand2Mouth Theatre (Portland, Oregon) and Teatr Stacja Szamocin (Szamocin, Poland) under the direction of Luba Zarembinska between 2006—2008. The performance premiered in Portland in 2008.

Physical theatre company Double Edge Theatre premiered a piece called Republic of Dreams in 2007 based on the life and works of Bruno Schulz.

Cynthia Ozick's 1987 novel, The Messiah of Stockholm, contributed to popularizing Schulz's work. Her text concerns a Swedish man convinced that he is the son of Schulz, who comes into possession of what he believes to be a manuscript of Schulz's final project, The Messiah. Schulz's presence also informs Israeli novelist David Grossman's 1989 novel See Under: Love. In a chapter entitled "Bruno," the narrator imagines Schulz embarking on a phantasmagoric sea journey rather than remaining in Drohobycz to be shot.

Polish writer and critic Jerzy Ficowski spent sixty years researching and excavating the writings and drawings of Schulz. His study, Regions of the Great Heresy, was published in an English translation in 2003, containing two chapters additional to the Polish edition: one on Schulz's lost work, Messiah, and the other on the re-discovery of Schulz's murals.

Israeli writer Amir Gutfreund refers to Bruno Schulz in two stories of his book The Shoreline Mansions. The first story, "Trieste", tells the story of a man who learned drawing with Bruno Schulz, and after the war found Schulz's lost drawings and kept them for him. Another story in the book is "If Bruno Schulz Sat Here".