Knowles was born in Fairmont, West Virginia, the son of James M. Knowles, a purchasing agent from Lowell, Massachusetts, and Mary Beatrice Shea Knowles from Concord, New Hampshire. He attended St. Peter's High School in Fairmont, West Virginia from 1940 until 1942, before continuing at Phillips Exeter Academy in Exeter, New Hampshire, graduating in 1945. He married Beth Anne Dymen Hughes at the age of 19. Knowles graduated from Yale University as a member of the class of 1949. While at Yale, Knowles served on the Board of Yale Daily News during his sophomore, junior and senior years, specifically as Editorial Secretary during his senior year. He was a record-holding varsity swimmer during his sophomore year. A Separate Peace is based upon Knowles' experiences at Phillips Exeter. The setting for The Devon School is a thinly veiled fictionalization of Phillips Exeter. The plot should not be taken as an autobiographical, although many elements of the novel stem from personal experience, including Knowles' membership in a secret society and sustaining of a foot injury while jumping from a tree during society exercises. In his essay, "A Special Time, A Special Place," Knowles wrote:

The only elements in A Separate Peace which were not in that summer were anger, violence, and hatred. There was only friendship, character, athleticism, and honor.

The secondary character Finny (Phineas) was the best friend of the main character, Gene. Knowles has stated that he modeled Finny on David Hackett from Milton Academy, whom he met when both attended a summer session at Phillips Exeter. Hackett was a friend of Robert Kennedy's, under whom he later served in the Justice Department. A Phineas Sprague lived in the same dormitory as Knowles during the summer session of 1943 and may have been an inspiration for the character's name.

Gore Vidal, in his memoir Palimpsest, acknowledges that he and Knowles concurrently attended Phillips Exeter, with Vidal two years ahead. Vidal states that Knowles told him that the character Brinker, who precipitates the novel's crisis, is based on Vidal. "We have been friends for many years now," Vidal said, "and I admire the novel that he based on our school days, A Separate Peace."

Following his time at Philips Exeter, Knowles spent eight months serving in the U.S. Army Air Forces in World War II after which he attended Yale. Early in Knowles' career, he wrote for the Hartford Courant and was assistant editor for Holiday magazine, while he concurrently began writing novels, of which he eventually completed seven.

A Separate Peace was first published in London by Secker and Warburg in 1959. The novel was published in New York in 1960 by Macmillan. Knowles' other significant works are Morning in Antibes, Double Vision: American Thoughts Abroad, Indian Summer, The Paragon, and Peace Breaks Out. None of these later works were as well received as A Separate Peace.

As a resident of Southampton, New York, Knowles wrote seven novels, a book on travel and a collection of stories. He was the winner of the William Faulkner Award and the Rosenthal Award shinguard of the National Institute of Arts and Letters. In his later years, Knowles lectured to university audiences.

Knowles died in 2001, at the age of 75, in Fort Lauderdale, Florida.

In 1972, Paramount Pictures released a film version of A Separate Peace, directed by Larry Peerce and starring Parker Stevenson (Gene) and John Heyl (Phineas). In 2004, a television version was produced by the Showtime network, directed by Peter Yates and starring J Barton (Gene) and Toby Moore (Phineas).