Lindsay was born into a middle-class Scottish Calvinist family who had moved to London, although growing up he spent much time in Jedburgh, whence his family originally came. Although he won a scholarship to university, he was forced by poverty to go into business, and he became an insurance clerk at Lloyd's of London. He was very successful, but his career was interrupted by service in the First World War, at the age of forty. He first joined the Grenadier Guards, then the Royal Army Pay Corps, where he was promoted to Corporal.

After the war he moved to Cornwall with his young wife to become a full-time writer. He published A Voyage to Arcturus in 1920, but it was not a success, selling fewer than six hundred copies. This extremely strange work was not obviously influenced by anybody, but further reading shows links with other Scottish fantasists (for example, George MacDonald), and it was in its turn a central influence on C. S. Lewis's Out of the Silent Planet.

Lindsay attempted to write a more "commercial" novel with his next work The Haunted Woman (1922), but this was barely more successful than the Voyage. He continued to write novels, including the humorous potboiler The Adventures of Monsieur de Mailly, but after Devil's Tor in 1932 he found it increasingly difficult to get published, and spent much of his time on his last work The Witch which was unpublished in his lifetime.

He and his wife opened a boarding house in Brighton, but they did not prosper and their marriage underwent considerable strain. The house was damaged by the first bomb to fall on Brighton in the Second World War and Lindsay, who was in his bath at the time, never recovered from the shock. His death from an infection resulting from an abscess in his tooth was unrelated to the bomb.

A Voyage to Arcturus has been described as the major "underground" novel of the 20th century. The secret of Lindsay's apparent strangeness as a novelist lies in his metaphysical assumptions. Like the gnostics he seems to have viewed the "real" world as an illusion, which must be rejected in order to perceive genuine "truth". In The Haunted Woman, the two main characters discover a room which seems to exist only some of the time; while they are there together, they can see more clearly and express themselves honestly. In The Violet Apple, the fruit of the title is of the species eaten by Adam and Eve, and Lindsay's description of its effects is a startling, lyrical episode in a novel which is otherwise concerned with rather ordinary matters.

Lindsay's austere vision of "true reality" seems to have been influenced by Scandinavian mythology. After being out of print for many decades, Lindsay's work has become increasingly available, and he is now seen as being perhaps the major Scottish fantasist of the 20th century, the missing link between George MacDonald and more modern writers such as Alasdair Gray who have also used surrealism and magic realism in their work. In 1971, Arcturus was produced as a 35mm feature film by William J. Holloway. It was the first film to be funded by a National Endowment for the Arts grant and has recently been re-released. Harold Bloom has also taken an interest in Lindsay's life and career, going so far as to publish a novel, The Flight to Lucifer, which he thought of as a Bloomian misprision, an homage and deep revision of A Voyage to Arcturus. Bloom, however, has conceded that his late-comer imitation is overwhelmed by Lindsay's great original.