Born in Neepawa, Manitoba, Laurence was the daughter of solicitor Robert Wemyss and Verna Jean Simpson. Following the death of her mother when Laurence was four, Margaret Simpson, a maternal aunt, came to take care of the family. A year later, Simpson married her father and in 1933 they had a son, Robert. In 1935, Robert Wemyss Sr. died of pneumonia.

In 1944, Laurence attended Winnipeg's United College (now the University of Winnipeg) on scholarship, pursuing an honours English degree. She wrote for the student newspaper and became involved with the "Old Left" socialist reform group. She graduated in 1947. Soon afterwards, she was hired as a reporter for The Winnipeg Citizen, where she wrote book reviews, covered labour issues, and hosted a daily radio column.

Following her graduation from United College, she married Jack Fergus Laurence, an engineer. His job took them to England (1949), the then-British protectorate of British Somaliland (1950—1952), as well as the British colony of the Gold Coast (1952—1957). Laurence developed an admiration for Africa and of its various populations, which found expression in her writing.

In 1952, Laurence gave birth to daughter Jocelyn during a leave in England. Son David was born in 1955 in the Gold Coast. The family left the Gold Coast just before it gained independence as Ghana in 1957, moving to Vancouver, British Columbia, where they stayed for five years.

In 1962, she separated from her husband and moved to London, England for a year. She then moved to Elm Cottage (Penn, Buckinghamshire) where she lived for more than ten years, although she visited Canada often. Her divorce became final in 1969. That year, she became writer in residence at the University of Toronto. A few years later, she moved to Lakefield, Ontario. She also bought a cabin on the Otonabee River near Peterborough, where she wrote The Diviners (1974) during the summers of 1971 to 1973. Laurence served as Chancellor of Trent University in Peterborough from 1981 to 1983.

In 1986, Laurence was diagnosed with lung cancer late in the disease's development. According to the James King biography, The Life of Margaret Laurence, the prognosis was grave, and as the cancer had spread to other organs, there was no treatment offered beyond palliative care. Laurence decided the best course of action was to spare herself and her family further suffering. She committed suicide at her home at 8 Regent St., Lakefield, on January 5, 1987. She was buried in her hometown in the Neepawa Cemetery, Neepawa, Manitoba. Laurence's house in Neepawa has been turned into a museum. Her literary papers are housed in the Clara Thomas Archives at York University.

One of Canada's most esteemed and beloved authors by the end of her literary career, Laurence began writing short stories shortly after her marriage, as did her husband. Each published fiction in literary periodicals while living in Africa, but Margaret continued to write and expand her range. Her early novels were influenced by her experience as a minority in Africa. They show a strong sense of Christian symbolism and ethical concern for being a white person in a colonial state.

It was after her return to Canada that she wrote The Stone Angel, the book for which she is best known. Set in a fictional prairie small town, the novel is narrated retrospectively by Hagar Shipley, a ninety-four year old woman living in her eldest son’s home in Vancouver. Published in 1964, the novel is of the literary form that looks at the entire life of a person, and Laurence produced a novel from a Canadian experience. After finishing school, the narrator moves from Toronto to Manitoba, and marries a rough-mannered homesteader, Bram Shipley, against the wishes of her father, who then disinherits her ... disinheritance a recurring theme in much of Laurence's fiction. The couple struggles through the economic hardship and climatic challenges of Canadian frontier existence, and Hagar, unhappy in the relationship, leaves Bram, moving with her son John to Vancouver where she works as a domestic for many years, betraying her social class and upbringing. The novel is required reading in many North American school systems and colleges.

Laurence was published by Canadian publishing company McClelland and Stewart, and she became one of the key figures in the emerging Canadian literature tradition. Her published works after The Stone Angel express the changing role of women's lives in the 1970s. Although on the surface, her later works like The Diviners depict very different roles for women than her earlier novels do, it is safe to say that Laurence throughout her career was faithfully dedicated to presenting a female perspective on contemporary life, depicting the choices ... and consequences of those choices ... women must make to find meaning and purpose in life.

In later life, Laurence was troubled when a fundamentalist Christian group succeeded in briefly removing The Diviners as course material from Lakefield High School, her local secondary school.

The Stone Angel, a feature-length film based on Laurence's novel, written and directed by Kari Skogland and starring Ellen Burstyn premiered in Fall 2007.

In 1967, Laurence won two Governor General's Awards for her novels A Jest of God (1966) and The Diviners (1974). In 1972 Laurence was made a Companion of the Order of Canada.

The Stone Angel was one of the selected books in the 2002 edition of Canada Reads, championed by Leon Rooke.

The University of Winnipeg named a Women's Studies Centre, and an annual speaker series, in Laurence's honour.

At York University in Toronto, one of the undergraduate residence buildings (Bethune Residence) named a floor after her.