Welch was born in Shanghai and spent his childhood in China — he recorded this in his fictionalised autobiography of his early years, Maiden Voyage (1943). With the help and patronage of Edith Sitwell and John Lehmann this became a small but lasting success and made for him a distinct and individual reputation. It was followed by the novel In Youth is Pleasure (1944), a study of adolescence, and by Brave and Cruel (1949). An unfinished autobiographical novel A Voice through a Cloud was published posthumously in 1950.

Welch did not set out to be a writer. After leaving Repton School, he studied art in London with the intention of becoming a painter. At the age of twenty, he was hit by a car while cycling in Surrey and suffered a fractured spine. Although he was not paralyzed, he suffered severe pain and complications, including spinal tuberculosis that ultimately led to his early death.

His literary work, intense and introverted, includes insightful portraits of his friends, and minutely observed portraits of the English countryside during World War II. A close attention to aesthetics, be it in human behaviour, physical appearance, clothing, art, architecture, jewelry, or antiques, is also a recurring concern in his writings. Shorter works include the essay on the painter Walter Sickert which, published originally in The London Magazine brought him to the notice of Sitwell. He continued occasionally to paint; there is a fine self-portrait (in the National Portrait Gallery), and some intricate line illustrations in the early editions of his books.

William S. Burroughs cited Denton Welch as the writer who most influenced his own work, and dedicated his novel The Place of Dead Roads to Welch.