Thompson grew up near Marathon, Wisconsin, a "homogenous farming community", in a fundamentalist Christian family. Craig Thompson Interview - UGO.com He was interested in art from an early age, and in high school wanted to become either a small-town artist or a film animator. He attended the University of Wisconsin—Marathon County for three semesters, during which he began writing a comic strip for the college newspaper and "just kind of fell in love with [comics], suddenly. It filled all my needs -- I was able to draw cartoons, to tell a story; but I also had total control, and I wasn't just a cog in some machine somewhere." After spending a semester at the Milwaukee Institute of Art & Design, Thompson left his hometown in 1997 and settled in Portland, Oregon. He worked briefly at Dark Horse Comics, drawing ads, logos, and toy packaging for the company while working on personal projects at night. After developing tendinitis, Thompson left Dark Horse and devoted his time to his own work.

His debut graphic novel was the semi-autobiographical Good-bye, Chunky Rice (1999), which was inspired by his move to Portland and "cute cartoony stuff" from his childhood such as the work of Jim Henson, Dr. Seuss, and Tim Burton. As a result of Chunky Rice, Thompson won a 2000 Harvey Award for Best New Talent and received a 2000 Ignatz Award nomination for Outstanding Artist. Thompson followed Chunky Rice with the mini-comics Bible Doodles (2000) and Doot Doot Garden (2001).

In late 1999, Thompson began work on a 600-page autobiographical graphic novel Blankets, which was published three and a half years later in 2003 to critical acclaim. Time magazine named Blankets its #1 graphic novel for 2003, and Thompson won two 2004 Eisner Awards, for Best Graphic Album-New and Best Writer/Artist, three Harvey Awards, for Best Artist, Best Cartoonist, and Best Graphic Album of Original Work, and two Ignatz Awards, for Outstanding Graphic Novel or Collection and Outstanding Artist.

Thompson said that he believes Blankets was a success because he was "reacting against all of the over-the-top, explosive action genre [in alternative comics, and] I also didn’t want to do anything cynical and nihilistic, which is the standard for a lot of alternative comics." As a result of Blankets, he rose quickly to the top ranks of American cartoonists in both popularity and critical esteem. Pulitzer Prize-winning comic artist Art Spiegelman sent him a long letter of praise for Blankets, and in mock-jealousy, Eddie Campbell expressed a temptation to break Thompson's fingers. Thompson followed Blankets with 2004's travelogue Carnet de Voyage, which received Ignatz Award nominations for Outstanding Graphic Novel and Outstanding Artist. He also contributed numerous short works to Nickelodeon Magazine, as "Craigory Thompson."

Since late 2004, Thompson has been working on Habibi, a new graphic novel to be published by Pantheon Books, a division of Random House. The book is influenced by Arabic calligraphy and Islamic mythology: "I'm playing with Islam in the same way I was playing with Christianity in Blankets," as he said in a 2005 interview. In May 2009, Thompson wrote that he had completed around 470 pages of Habibi, out of a planned total of 600.

In 2007, Thompson created the artwork for the Menomena album Friend and Foe, which was released on January 23 from Barsuk Records. Thompson's design received a Grammy nomination for Best Recording Package, to which he responded, "I wanna get it! I think it would be very funny to be a cartoonist with a Grammy...if nothing else it helps bring attention to the band."

Thompson is significantly influenced by French comics (bandes-dessinées) and cartoonists, such as Edmond Baudoin, Charles Berberian, Blutch, and David B. He has also acknowledged the influences of graphic artists Taro Yashima, Daniel Clowes, Chris Ware, and Joe Sacco. Thompson has said that, in his composition process, pages are initially composed "in a very illegible form, a shorthand where words and pictures blur into alien scribbles[...]I'm working with words and pictures right from the beginning, but the picture might not look any different from a letter, because they're just a bunch of scribbles on a page." Then he rewrites those sketches into "a detailed thumbnail with clear handwriting, and that way I can go back and edit." Even on his long works, Thompson drafts the entire book in ballpoint pen before beginning the final brush-inked version.

Graphic novels

• Good-bye, Chunky Rice (1999)
• Blankets (2003)
• Carnet de Voyage (2004)
• Habibi (forthcoming)

Mini-comics

• Bible Doodles (2000)
• Doot Doot Garden (2001)