Born in East Melbourne into a prosperous family that later fell on hard times, Ethel Florence (who preferred to answer to Et, Ettie or Etta) was the elder daughter of Walter Lindesay Richardson MD (c. 1826—79) and his wife Mary (née Bailey).

The family lived in various towns across Victoria during Richardson's childhood and youth. These included Chiltern, Queenscliff, Koroit and, most happily, Maldon, where Richardson's mother was postmistress (her father having died when she was 9, of syphilis) Richardson left Maldon to become a boarder at Presbyterian Ladies' College in Melbourne in 1883 and attended from the ages of 13 to 17. This experience was the basis for The Getting of Wisdom, a coming-of-age novel admired by H. G. Wells. At PLC she started to develop her ability to credibly mix fact with fiction, a skill she used to advantage in her novels.

Richardson excelled in the arts and music during her time at PLC, and her mother took the family to Europe in 1888, to enable Richardson to continue her musical studies at the Leipzig Conservatorium. Richardson set her first novel, Maurice Guest, in Leipzig.

In 1894 in Munich Richardson married the Scot John George Robertson, whom she had met in Leipzig where he was studying German literature and who later briefly taught at the University of Strasburg, where his wife became ladies' tennis champion. In 1903, the couple moved to London, where Robertson had been appointed to the first chair of German at University College, London. Richardson returned to Australia in 1912, in order to research family history for The Fortunes of Richard Mahony, but after her return to England, she remained there for the rest of her life. She and her sister Lillian were ardent supporters of the suffragette movement, Lillian even being imprisoned for destroying public property. She was involved in psychic research, and after her husband's death, she claimed she maintained daily contact with him via seances.

Richardson's life was tinged with lesbianism. At Presbyterian Ladies' College, she fell in love with an older schoolgirl; the feelings of adolescent females awakening to their sexuality were reflected in her second novel, The Getting of Wisdom. After her mother's death, she fell passionately in love with the Italian actress Eleonora Duse, but had to be content to love her from a distance. Her friend Olga Roncoroni, who had lived in the Robertson household for many years, filled the gap left by the death of her husband. After her own death, many of her private papers were destroyed, in accordance with her instructions.

The Fortunes of Richard Mahony is Richardson's famous trilogy about the slow decline, owing to character flaws and an unnamed brain disease, of a successful Australian physician and businessman and the emotional/financial effect on his family. It was highly praised by Sinclair Lewis, among others, and was inspired by Richardson's own family experiences. The central characters weres based loosely on her own parents.

Richardson also produced a single volume of short stories and an autobiography that greatly illuminates the settings of her novels, although her Australian Dictionary of Biography entry asserts that it is somewhat unreliable.

Richardson died of cancer on 20 March 1946 in Hastings, East Sussex, England. Her cremated remains were scattered by her wish with her husband's at sea.