Also known as Dot or Dottie, Parker was born Dorothy Rothschild to Jacob Henry and Eliza Annie Rothschild (née Marston) at 732 Ocean Avenue in the West End village of Long Branch, New Jersey, where her parents had a summer beach cottage. Dorothy's mother was of Scottish descent, and her father was of German-Jewish descent (unrelated, however, to the Rothschild banking dynasty). Parker wrote in her essay "My Hometown" that her parents got her back to their Manhattan apartment shortly after Labor Day so she could be called a true New Yorker. Her mother died in West End in July 1898, when Parker was a month shy of turning five. Her father was remarried in 1900, to a woman named Eleanor Francis Lewis. Parker detested her father and stepmother, accusing her father of being physically abusive and refusing to call Eleanor either "mother" or "stepmother," instead referring to her as "the housekeeper." She grew up on the Upper West Side, and attended Roman Catholic elementary school at the Convent of the Blessed Sacrament, despite having a Jewish father and Protestant stepmother. She was asked to leave following her characterization of the Immaculate Conception as "spontaneous combustion". Her stepmother died in 1903, when Parker was nine. Parker later went to Miss Dana's School, a finishing school in Morristown, New Jersey. Her formal education ended when she was 13. Her father died in 1913. Following his death, she played piano at a dancing school to earn a living while she worked on her verse.

She sold her first poem to Vanity Fair magazine in 1914 and some months later, she was hired as an editorial assistant for another Condé Nast magazine,Vogue. She moved to Vanity Fair as a staff writer following two years at Vogue.

In 1917, she met and married a Wall Street stock broker, Edwin Pond Parker II(March 28, 1893 in Hartford, Connecticut — January 7, 1933 in Hartford, Connecticut), but they were separated by his army service in World War I. She had ambivalent feelings about her Jewish heritage given the strong antisemitism of that era and joked that she married to escape her name.

In 1921, her career took off while she was writing theatre criticism for Vanity Fair, which she began to do in 1918 as a stand-in for the vacationing P. G. Wodehouse. At the magazine she met Robert Benchley, who became a close friend, and Robert E. Sherwood. The trio began lunching at the Algonquin Hotel on a near-daily basis and became founding members of the Algonquin Round Table. The Round Table numbered among its members the newspaper columnists Franklin Pierce Adams and Alexander Woollcott. Through their re-printing of her lunchtime remarks and short verses, particularly in Adams' column "The Conning Tower," Dorothy began developing a national reputation as a wit.

Parker's caustic wit as a critic initially proved popular, but she was eventually terminated by Vanity Fair in 1920 after her criticisms began to offend powerful producers too often. In solidarity, both Benchley and Sherwood resigned in protest.

When Harold Ross founded The New Yorker in 1925, she and Benchley were part of a "board of editors" established by Ross to allay concerns of his investors. Parker's first piece for the magazine appeared in its second issue. Parker became famous for her short, viciously humorous poems, many about the perceived ludicrousness of her many (largely unsuccessful) romantic affairs and others wistfully considering the appeal of suicide.

Her greatest period of productivity and success came in the next 15 years. In the 1920s alone she published some 300 poems and free verses in outlets including the aforementioned Vanity Fair, Vogue, "The Conning Tower" and The New Yorker along with Life, McCall's and The New Republic.Parker published her first volume of poetry, Enough Rope, a collection of previously published work along with new material in 1926. The collection sold 47,000 copies and garnered impressive reviews. The Nation described her verse as "caked with a salty humor, rough with splinters of disillusion, and tarred with a bright black authenticity." Although some critics, notably the New York Times, dismissed her work as "flapper verse," the volume helped cement her status, as the New York World review put it, as "one of the most sparkling wits who express themselves through light verse." Parker released two more volumes of verse, Sunset Gun (1928) and Death and Taxes (1931), along with the short story collections Laments for the Living (1930) and After Such Pleasures (1933). Not So Deep as a Well (1936) collected much of the material previously published in Rope, Gun and Death and she re-released the fiction with a few new pieces in 1939 under the title Here Lies.

In 1924, Parker collaborated with fellow Algonquinite George S. Kaufman on a one-act play, Business is Business. She next collaborated with playwright Elmer Rice to create Close Harmony. The play was well received in out-of-town previews and was favorably reviewed in New York but closed after a run of just 24 performances. It did, however, become a successful touring production under the title The Lady Next Door.

Some of her most popular work was published in The New Yorker in the form of acerbic book reviews under the byline "Constant Reader" (her response to the whimsy of A. A. Milne's The House at Pooh Corner: "Tonstant Weader fwowed up."). Her reviews appeared semi-regularly from 1927 to 1933, were widely read, and were later published in a collection under the name Constant Reader in 1970.

Her best-known short story, "Big Blonde", published in The Bookman magazine, was awarded the O. Henry Award as the best short story of 1929. Her short stories, though often witty, were also spare and incisive, and more bittersweet than comic.

She eventually separated from her husband and had a number of affairs, including with reporter-turned-playwright Charles MacArthur and the publisher Seward Collins. Her relationship with MacArthur resulted in a pregnancy...which she aborted...about which Parker is alleged to have remarked, "How like me, to put all my eggs into one bastard", and a depression that culminated in her first attempt at suicide. Edwin and she divorced in 1928.

It was toward the end of this period that Parker began to become politically aware and active. What would become a lifelong commitment to left-leaning causes began in 1927 with the pending executions of Sacco and Vanzetti. Parker travelled to Boston to protest the proceedings. She and fellow Round Tabler Ruth Hale were arrested, and Parker eventually pleaded guilty to a charge of "loitering and sauntering," paying a $5 fine.

In 1934, she married Alan Campbell, an actor with aspirations of being a screenwriter. Like Parker, he was half-Jewish and half-Scottish. He was reputed to be bisexual...indeed, Parker claimed in public that he was "queer as a billy goat". The pair moved to Hollywood and signed ten-week contracts with Paramount Pictures, with Campbell (who was also expected to act) earning $250 per week and Parker earning $1,000 per week. They would eventually earn $2,000 and in some instances upwards of $5,000 per week as freelancers for various studios. She and Campbell worked on more than 15 films.

In 1936, she contributed lyrics for the song "I Wished on the Moon", with music by Ralph Rainger. The song was introduced in The Big Broadcast of 1936 by Bing Crosby.

With Robert Carson and Campbell, she wrote the script for the 1937 film A Star is Born, for which they were nominated for an Academy Award for Best Writing - Screenplay. She wrote additional dialogue for The Little Foxes in 1941 and received another Oscar nomination, with Frank Cavett, for 1947's Smash-Up, the Story of a Woman, starring Susan Hayward.

After the United States entered the Second World War, Parker and Alexander Woollcott collaborated to produce an anthology of her work as part of a series published by Viking Press for servicemen stationed overseas. With an introduction by Somerset Maugham the volume compiled over two dozen of Parker's short stories along with selected poems from Enough Rope, Sunset Gun, and Death and Taxes. It was released in the United States in 1944 under the title The Portable Dorothy Parker. (Alas, Woollcott was not alive to see the new edition: he had died in early 1943, aged 56.) Parker's is one of only three of the Portable series (the other two being William Shakespeare and The Bible) to remain continuously in print.

During the 1930s and 1940s period, Parker became a more vocal advocate of increasingly radical left-wing causes, a fierce civil libertarian and civil rights advocate and a frequent critic of those in authority. She reported on the Loyalist cause in Spain for the Communist New Masses magazine in 1937. At the behest of Otto Katz, a covert Soviet Comintern agent and operative of German Communist Party agent Willi Muenzenberg, Parker helped to found the Hollywood Anti-Nazi League in 1936. The Hollywood Anti-Nazi League's membership eventually grew to some 4,000 strong, whose often wealthy but mostly unsuspecting members were, in the words of David Caute, "able to contribute as much to [Communist] Party funds as the whole American working class." Willi Münzenberg's ‘Innocents' Clubs’

Parker also served as chair of the Joint Anti-Fascist Rescue Committee. She organized Project Rescue Ship to transport Loyalist veterans to Mexico, headed Spanish Children's Relief and lent her name to many other left-wing causes and organizations. Her former Round Table friends saw less and less of her, with her relationship with Robert Benchley being particularly strained (although they would reconcile). Parker met S.J. Perelman at a party in 1932, and despite a rocky start (Perelman called it 'a scarifying ordeal') - they remained friends for the next 35 years, even neighbors, when Sid and Laura Perelman helped Parker and Campbell buy a run-down farm in Bucks County, PA, where many of New York's literati had chosen to settle. "We haven't any roots, Alan" Parker had complained to Campbell.

Her marriage with Campbell was tempestuous, with tensions exacerbated by Parker's increasing alcohol consumption and Alan's long-term affair with a married woman while he was in Europe during World War II. They divorced in 1947, then remarried in 1950, and remained married (although they lived apart from 1952—1961) until his death in 1963 in West Hollywood.

Parker's final screenplay was The Fan, a 1949 adaptation of Oscar Wilde's Lady Windermere's Fan, directed by Otto Preminger.

Parker was heard occasionally on radio, including Information Please (as a guest) and Author, Author (as a regular panelist). She wrote for the Columbia Workshop, and both Ilka Chase and Tallulah Bankhead used her material for radio monologues.

Parker was listed as a Communist by the publication Red Channels in 1950. The FBI compiled a 1,000-page dossier on her because of her suspected involvement in Communism during the McCarthy era. As a result, she was placed on the Hollywood blacklist by the movie studio bosses.

In 1952 Parker moved back to New York, into the Volney residential hotel. She drew upon her experiences there to co-write, with Arnaud d'Usseau, the play Ladies of the Corridor. The play opened in October 1953 to uneven reviews and closed after six weeks.

From 1957 to 1962 she wrote book reviews for Esquire, though these pieces were increasingly erratic owing to her continued abuse of alcohol. One of these reviews had a huge impact on the career of the young Harlan Ellison. Reviewing his paperback short story collection Gentleman Junkie and Other Stories of the Hung-Up Generation (Regency, 1961), she described Ellison as "a good, clean, honest writer, putting down what he has seen and known and no sensationalism about it" and lavished praise on his story "Daniel White for the Greater Good," commenting, "It is without exception the best presentation I have ever seen of present racial conditions in the South and of those who try to alleviate them. I cannot recommend it too vehemently.... Incidentally, the other stories in Mr. Ellison's book are not so dusty, either." Her favorable nod gave Ellison a foothold with both mainstream publishers and film producers, and shortly afterwards he headed for Hollywood.

In 1961 Parker returned to Hollywood and reconciled with Campbell. They worked together on a number of unproduced projects; among her last was an unproduced film for Marilyn Monroe. Parker found Campbell dead in their home in 1963, a suicide by drug overdose.

Following Campbell's death, Parker returned to New York City and the Volney. In her later years, she would come to denigrate the group that had brought her such early notoriety, the Algonquin Round Table:

These were no giants. Think who was writing in those days--Lardner, Fitzgerald, Faulkner and Hemingway. Those were the real giants. The Round Table was just a lot of people telling jokes and telling each other how good they were. Just a bunch of loudmouths showing off, saving their gags for days, waiting for a chance to spring them.... There was no truth in anything they said. It was the terrible day of the wisecrack, so there didn't have to be any truth....

Parker died of a heart attack at the age of 73 in 1967. In her will, she bequeathed her estate to the Dr. Martin Luther King, Jr. foundation. Following King's death, her estate was passed on to the NAACP. Her executrix, Lillian Hellman, bitterly but unsuccessfully contested this disposition. Her ashes remained unclaimed in various places, including her attorney Paul O'Dwyer's filing cabinet, for approximately 17 years.

In 1988, the NAACP claimed Parker's remains and designed a memorial garden for them outside their Baltimore headquarters. The plaque reads,

Here lie the ashes of Dorothy Parker (1893—1967) humorist, writer, critic. Defender of human and civil rights. For her epitaph she suggested, 'Excuse my dust'. This memorial garden is dedicated to her noble spirit which celebrated the oneness of humankind and to the bonds of everlasting friendship between black and Jewish people. Dedicated by the National Association for the Advancement of Colored People. October 28, 1988.

On August 22, 1992, the 99th anniversary of Parker's birth, the United States Postal Service issued a 29¢ U.S. commemorative postage stamp in the Literary Arts series. The Algonquin Round Table, as well as the number of other literary and theatrical greats who lodged there, helped earn the Algonquin Hotel its status as a New York City Historic Landmark. The hotel was so designated in 1987. In 1996 the hotel was designated a National Literary Landmark by the Friends of Libraries USA based on the contributions of Parker and other members of the Round Table. The organization's bronze plaque is attached to the front of the hotel. Her birthplace was also designated a National Literary Landmark by Friends of Libraries USA in 2005 and a bronze plaque marks the spot where the home once stood.

Parker was the inspiration for a number of fictional characters in several plays of her day. These included "Lily Malone" in Philip Barry's Hotel Universe (1932), "Mary Hilliard" (played by Ruth Gordon) in George Oppenheimer's Here Today (1932), "Julia Glenn" in the George S. Kaufman-Moss Hart collaboration Merrily We Roll Along (1934) and "Paula Wharton" in Gordon's 1944 play Over Twenty-one (directed by Kaufman). She also appeared as "Daisy Lester" in Charles Brackett's 1934 novel Entirely Surrounded. Kaufman's representation of her in Merrily We Roll Along led Parker, once his Round Table compatriot, to despise him.

She has been portrayed on film and television by Dolores Sutton in F. Scott Fitzgerald in Hollywood (1976), Rosemary Murphy in Julia (1977), Bebe Neuwirth in Dash and Lilly (1999), and Jennifer Jason Leigh in Mrs. Parker and the Vicious Circle (1994). Neuwirth was nominated for an Emmy Award for her performance, and Leigh received a number of awards and nominations, including a Golden Globe nomination.

Parker, along with other figures of the era such as Ira Gershwin and George Gershwin, is featured as a character in Act 1, Scene 12 of the stage musical version of Thoroughly Modern Millie, "Muzzy's Party Scene."