Lahiri was born in London, the daughter of Bengali Indian immigrants. Her family moved to the United States when she was three; Lahiri considers herself an American, stating, "I wasn't born here, but I might as well have been." Lahiri grew up in Kingston, Rhode Island, where her father Amar Lahiri works as a librarian at the University of Rhode Island; he is the basis for the protagonist in "The Third and Final Continent," the closing story from Interpreter of Maladies. Lahiri's mother wanted her children to grow up knowing their Bengali heritage, and her family often visited relatives in Calcutta (now Kolkata).

When she began kindergarten in Kingston, Rhode Island Lahiri's teacher decided to call her by her pet name, Jhumpa, because it was easier to pronounce than her "proper names". Lahiri recalled, "I always felt so embarrassed by my name.... You feel like you're causing someone pain just by being who you are." Lahiri's ambivalence over her identity was the inspiration for the ambivalence of Gogol, the protagonist of her novel The Namesake, over his unusual name. Lahiri graduated from South Kingstown High School, and received her B.A. in English literature from Barnard College in 1989.

Lahiri then received multiple degrees from Boston University: an M.A. in English, M.F.A. in Creative Writing, M.A. in Comparative Literature, and a Ph.D. in Renaissance Studies. She took a fellowship at Provincetown's Fine Arts Work Center, which lasted for the next two years (1997—1998). Lahiri has taught creative writing at Boston University and the Rhode Island School of Design.

In 2001, Lahiri married Alberto Vourvoulias-Bush, a journalist who was then Deputy Editor of TIME Latin America (and now Executive Editor of El Diario/La Prensa, New York's largest Spanish daily and America's fastest growing newspaper). Lahiri lives in Brooklyn, New York with her husband and their two children, Octavio (b. 2002) and Noor (b. 2005).

Lahiri's early short stories faced rejection from publishers "for years". Her debut short story collection, Interpreter of Maladies was finally released in 1999. The stories address sensitive dilemmas in the lives of Indians or Indian immigrants, with themes such as marital difficulties, miscarriages, and the disconnection between first and second generation United States immigrants. Lahiri later wrote, "When I first started writing I was not conscious that my subject was the Indian-American experience. What drew me to my craft was the desire to force the two worlds I occupied to mingle on the page as I was not brave enough, or mature enough, to allow in life." The collection was praised by American critics, but received mixed reviews in India, where reviewers were alternately enthusiastic and upset Lahiri had "not paint[ed] Indians in a more positive light." Interpreter of Maladies sold 600,000 copies and received the 2000 Pulitzer Prize for Fiction (only the seventh time a story collection had won the award).

In 2003, Lahiri published The Namesake, her first novel. The story spans over thirty years in the life of the Ganguli family. The Calcutta-born parents emigrated as young adults to the United States, where their children, Gogol and Sonia, grow up experiencing the constant generational and cultural gap with their parents. A film adaptation of The Namesake was released in March 2007, directed by Mira Nair and starring Kal Penn as Gogol and Bollywood stars Tabu and Irrfan Khan as his parents.

Lahiri's second collection of short stories, Unaccustomed Earth, was released on April 1, 2008. Upon its publication, Unaccustomed Earth achieved the rare distinction of debuting at number 1 on The New York Times best seller list. New York Times Book Review editor, Dwight Garner, stated, "It’s hard to remember the last genuinely serious, well-written work of fiction ... particularly a book of stories ... that leapt straight to No. 1; it’s a powerful demonstration of Lahiri’s newfound commercial clout."

Lahiri has also had a distinguished relationship with The New Yorker magazine in which she has published a number of her short stories, mostly fiction, and a few non-fiction including The Long Way Home; Cooking Lessons, a story about the importance of food in Lahiri's relationship with her mother.

Since 2005, Lahiri has been a Vice President of the PEN American Center, an organization designed to promote friendship and intellectual cooperation among writers.

In February 2010, she was appointed a member of the Committee on the Arts and Humanities, along with five others.

Lahiri's writing is characterized by her "plain" language and her characters, often Indian immigrants to America who must navigate between the cultural values of their birthplace and their adopted home.Lahiri's fiction is autobiographical and frequently draws upon her own experiences as well as those of her parents, friends, acquaintances, and others in the Bengali communities with which she is familiar. Lahiri examines her characters' struggles, anxieties, and biases to chronicle the nuances and details of immigrant psychology and behavior.

Until Unaccustomed Earth, she focused mostly on first-generation Indian American immigrants and their struggle to raise a family in a country very different from theirs. Her stories describe their efforts to keep their children acquainted with Indian culture and traditions and to keep them close even after they have grown up in order to hang on to the Indian tradition of a joint family, in which the parents, their children and the children's families live under the same roof.

Unaccustomed Earth departs from this earlier original ethos as Lahiri's characters embark on new stages of development. These stories scrutinize the fate of the second and third generations. As succeeding generations become increasingly assimilated into American culture and are comfortable in constructing perspectives outside of their country of origin, Lahiri's fiction shifts to the needs of the individual. She shows how later generations depart from the constraints of their immigrant parents, who are often devoted to their community and their responsibility to other immigrants.

Short story collections

• Interpreter of Maladies (1999)
• Unaccustomed Earth (2008)

Novels

• The Namesake (2003)

Short stories

• "Nobody's Business" (12 March 2001, The New Yorker) ("The Best American Short Stories 2002")
• "Hell-Heaven" (24 May 2004, The New Yorker)
• "Once In A Lifetime" (1 May 2006, The New Yorker)
• "Year's End" (24 December 2007, The New Yorker)

• 1993 ... TransAtlantic Award from the Henfield Foundation
• 1999 ... O. Henry Award for short story "Interpreter of Maladies"
• 1999 ... PEN/Hemingway Award (Best Fiction Debut of the Year) for Interpreter of Maladies
• 1999 ... "Interpreter of Maladies" selected as one of Best American Short Stories
• 2000 ... Addison Metcalf Award from the American Academy of Arts and Letters
• 2000 - "The Third and Final Continent" selected as one of Best American Short Stories
• 2000 ... The New Yorker's Best Debut of the Year for "Interpreter of Maladies"
• 2000 ... Pulitzer Prize for Fiction for her debut Interpreter of Maladies
• 2000 ... James Beard Foundation's M.F.K. Fisher Distinguished Writing Award for "Indian Takeout" in Food & Wine Magazine
• 2002 ... Guggenheim Fellowship
• 2002 - "Nobody's Business" selected as one of Best American Short Stories
• 2008 - Frank O'Connor International Short Story Award for Unaccustomed Earth
• 2009 - Asian American Literary Award for Unaccustomed Earth

Contributions

• (Introduction) The Magic Barrel: Stories by Bernard Malamud, Farrar, Straus and Giroux, July 2003.
• (Introduction) Malgudi Days by R.K. Narayan, Penguin Classics, August 2006.
• "Rhode Island" (essay), A Panoramic Portrait of America edited by Matt Weiland and Sean Wilsey, Ecco, September 16, 2008