Thaxter grew up in the Isles of Shoals, first on White Island, where her father, Thomas Laighton, was a lighthouse keeper, and then on Smuttynose and Appledore Islands.

When she was sixteen, she married Levi Thaxter and moved to the mainland, residing first in Watertown, Massachusetts at a property his father owned. In 1854, they accepted an offer to use a house in Newburyport. The couple then acquired their own home, today called the Celia Thaxter House, built in 1856 near the Charles River at Newtonville. She had a son, Roland, born August 28, 1858, who would later become a prominent plant pathologist. Her first published poem, Landlocked, was written during this time on the mainland. Her life with Levi was not harmonious and she missed her islands, and so after 10 years away, she moved back to Appledore Island.

Celia became the hostess of her father's hotel, the Appledore House, and welcomed many New England literary and artistic notables to the island and to her parlor, including writers Ralph Waldo Emerson, Nathaniel Hawthorne, Henry Wadsworth Longfellow, John Whittier, Sarah Orne Jewett, and the artists William Morris Hunt and Childe Hassam, who painted several pictures of her. She was present at the time of the infamous murders on Smuttynose Island, about which she wrote the essay, A Memorable Murder. In 2008, The Library of America selected "A Memorable Murder" for inclusion in its two-century retrospective of American True Crime.

William Morris Hunt, a close family friend, spent the last months of his life on Appledore Island, trying to recover from a crippling depression. He drowned in late summer 1879, three days after finishing his last sketch. Celia Thaxter discovered the painter's body, an apparent suicide. That same year, the Thaxters bought 186 acres (75 hectares) along Seapoint Beach on Cutts Island, Kittery Point, where they built a grand Shingle Style "cottage" called Champernowne Farm. In 1880, they auctioned the Newtonville house, and by 1881, moved to the new home. It stayed in the family until the 1989 death of her granddaughter and biographer, Rosamond Thaxter.

Her poems first appeared in The Atlantic Monthly and she became one of America's favorite authors in the late 19th century. Among her best-known poems are The Burgomaster Gull, Landlocked, Milking, The Great White Owl, The Kingfisher, and especially The Sandpiper.

Celia Thaxter died suddenly while on Appledore Island. She was buried not far from her cottage, which unfortunately burned in the 1914 fire that destroyed The Appledore House hotel.

File:Celia Thaxter house in Watertown MA.jpg|Thaxter's home in WatertownFile:Celia Thaxter House in Newton MA.jpg|The Celia Thaxter House in NewtonvilleFile:Celia Thaxter's Cottage, Isles of Shoals, ME.jpg|Thaxter's cottage on Appledore IslandFile:Celia Thaxter in Her Garden.jpg|Celia Thaxter in her Garden, 1892, by Childe Hassam