Steffens was born April 6, 1846, in San Francisco and grew up in Sacramento, California. He studied in France and Germany after graduating from the University of California, where he was first exposed to what were known then as "radical" political views.

Steffens began his journalistic career at the New York Evening Post. He later on became an editor of McClure's magazine, where he became part of a celebrated muckraking trio, along with Ida Tarbell and Ray Stannard Baker. He specialized in investigating government and political corruption, and two collections of his articles were published as The Shame of the Cities (1904) and The Struggle for Self-Government (1906). He also wrote The Traitor State, which criticized New Jersey for patronizing incorporation. In 1906, he left McClure's, along with Tarbell and Baker, to form The American Magazine.

In The Shame of the Cities, Steffens sought to bring about political reform in urban America by appealing to the emotions of Americans. He tried to make them feel outraged and "shamed" by showing examples of corrupt governments throughout urban America.

In 1910 he covered the Mexican Revolution and began to see revolution as preferable to reform. In 1919, he visited the Soviet Union together with William C. Bullitt and the Swedish Communist Karl Kilbom, and Steffens developed an enthusiasm for Communism; not long after, he made his famous remark about the new Soviet government, which according to historian Richard Pipes, Steffens wrote on a train in Sweden before he had even arrived in the USSR.

His enthusiasm had soured by the time he wrote his memoirs, published in 1931. He was a member of a group that came to be known as the California Writers Project, a New Deal program funded by the U.S. Government. Some of its members were socialists or communists.