Bayley was educated at Eton, where he studied under G.W. Lyttelton, who also taught Aldous Huxley, J.B.S. Haldane, George Orwell and Cyril Connolly. After leaving Eton, he went on to take a degree at Oxford. From 1974 to 1992, Bayley was Warton Professor of English at Oxford. He is also a novelist and writes literary criticism for several newspapers. He edited Henry James' The Wings of the Dove and a two-volume selection of James' short stories.
From 1956 until her death in 1999, he was married to the writer Dame Iris Murdoch. When she was diagnosed with Alzheimer's disease, he wrote the book Iris: A Memoir of Iris Murdoch, which was made into the 2001 film Iris by Richard Eyre. In this film Bayley was portrayed in his early years by Hugh Bonneville and in his later years by Jim Broadbent, who won an Oscar for the performance. After Murdoch's death he married Audi Villers, a family friend. He was awarded the CBE in 1999.