Loti's education began in Rochefort. At the age of seventeen he entered the naval school in Brest and studied on Le Borda. He gradually rose in his profession, attaining the rank of captain in 1906. In January 1910 he went on the reserve list.

His pseudonym is said to refer to his extreme shyness and reserve in early life, which made his comrades call him after "le Loti" (lotus), an Indian flower which allegedly loves to blush unseen. Other explanations have been put forth by scholars: for instance, that he acquired the name in Tahiti, where he got a sunburn and was called Roti (a red-colored local flower), but couldn't pronounce the "r" so he stuck with "Loti". He was in the habit of claiming that he never read books, saying to the Académie française on the day of his introduction (7 April 1892), "Loti ne sait pas lire" ("Loti doesn't know how to read"), but testimony from friends proves otherwise, as does his library, much of which is preserved in his house in Rochefort. In 1876 fellow naval officers persuaded him to turn into a novel passages in his diary dealing with some curious experiences at Istanbul. The result was Aziyadé (1879), a novel which, like so many of Loti's, is part romance, part autobiography, like the work of his admirer, Marcel Proust, after him. (There is a popular cafe in Eyüp in current-day Istanbul dedicated to the time Loti spent in Turkey.)

He proceeded to the South Seas as part of his naval training, and several years after leaving Tahiti published the Polynesian idyll originally named Rarahu (1880), which was reprinted as Le Mariage de Loti, the first book to introduce him to the wider public. This was followed by Le Roman d'un spahi (1881), a record of the melancholy adventures of a soldier in Senegal. In 1882, Loti issued a collection of four shorter pieces, three stories and a travel piece, under the general title of Fleurs d'ennui (Flowers of Boredom).

In 1883 he entered a wider public spotlight. First, he published the critically acclaimed Mon frère Yves (My Brother Yves), a novel describing the life of a French naval officer (Pierre Loti), and a Breton sailor (Yves Kermadec), described by Edmund Gosse as "one of his most characteristic productions". Second, while serving in Tonkin (northern Vietnam) as a naval officer aboard the ironclad Atalante, Loti published three articles in the newspaper Le Figaro in September and October 1883 about atrocities that occurred during the Battle of Thuan An (20 August 1883), an attack by the French on the Vietnamese coastal defenses of Hue. He was threatened with suspension from the service for this indiscretion, thus gaining wider public notoriety.

In 1886 he published a novel of life among the Breton fisherfolk, called Pêcheur d'Islande (An Iceland Fisherman), which Edmund Gosse characterized as "the most popular and finest of all his writings." It shows Loti adapting some of the Impressionist techniques of contemporary painters, especially Monet, to prose, and is a classic of French literature. In 1887 he brought out a volume "of extraordinary merit, which has not received the attention it deserves", Propos d'exil, a series of short studies of exotic places, in his characteristic semi-autobiographic style. Madame Chrysanthème, a novel of Japanese manners that is a precursor to Madame Butterfly and Miss Saigon (a combination of narrative and travelog) was published the same year.

In 1890 he published Au Maroc, the record of a journey to Fez in company with a French embassy, and Le Roman d'un enfant (The Story of a Child), a somewhat fictionalized recollection of Loti's childhood that would greatly influence Marcel Proust. A collection of "strangely confidential and sentimental reminiscences", called Le Livre de la pitié et de la mort, (The Book of Pity and Death) was published in 1891.

Loti was on shipboard at the port of Algiers when news reached him of his election, on 21 May 1891, to the Académie française. In 1892 he published Fantôme d'orient, a short novel derived from a subsequent trip to Istanbul, less a continuation of Aziyadé than a commentary on it. He described a visit to the Holy Land in three volumes, The Desert, Jerusalem, and Galilee, (1895–1896), and wrote a novel, Ramuntcho (1897), a story of contraband runners in the Basque province, which is one of his best writings. In 1898 he collected his later essays as Figures et Choses qui passaient (Passing Figures and Things).

In 1899 and 1900 Loti visited British India, with the view of describing what he saw; the result appeared in 1903 in L'Inde (India (without the English)). During the autumn of 1900 he went to China as part of the international expedition sent to combat the Boxer Rebellion. He described what he saw there after the siege of Beijing in Les Derniers Jours de Pékin (The Last Days of Peking, 1902).

Among his later publications were: La Troisième jeunesse de Mme Prune (The Third Youth of Mrs. Plum, 1905), which resulted from a return visit to Japan and once again hovers between narrative and travelog; Les Désenchantées (The Unawakened, 1906); La Mort de Philae (The Death of Philae, 1908), recounting a trip to Egypt; Judith Renaudin (produced at the Théâtre Antoine, 1898), a five-act historical play that Loti presented as based on an episode in his family history; and, in collaboration with Emile Vedel, a translation of King Lear, produced at the Théâtre Antoine in 1904. Les Désenchantées, which concerned women of the Turkish harem, was based like many of Loti's books, on fact. It has, however, become clear that Loti was in fact the victim of a cruel hoax by three prosperous Turkish women.

In 1912 he mounted a production of The Daughter of Heaven, authored several years earlier in collaboration with Judith Gautier for Sarah Bernhardt, at the Century Theatre in New York City.

He died in 1923 at Hendaye and was interred on the Île d'Oléron with a state funeral.

Loti was an inveterate collector and his marriage into wealth helped him support this habit. His house in Rochefort, a remarkable reworking of two adjacent bourgeois row houses, is preserved as a museum. One elaborately tiled room is an Orientalist fantasia of a mosque, including a small fountain and five ceremoniously draped coffins containing desiccated bodies. Another room evokes a medieval banqueting hall. Loti's own bedroom is rather like a monk's cell, but mixes Christian and Muslim religious artifacts. The courtyard described in The Story of a Child, with the fountain built for him by his older brother, is still there.

Contemporary critic Edmund Gosse gave the following assessment of his work:

At his best Pierre Loti was unquestionably the finest descriptive writer of the day. In the delicate exactitude with which he reproduced the impression given to his own alert nerves by unfamiliar forms, colors, sounds and perfumes, he was without a rival. But he was not satisfied with this exterior charm; he desired to blend with it a moral sensibility of the extremest refinement, at once sensual and ethereal. Many of his best books are long sobs of remorseful memory, so personal, so intimate, that an English reader is amazed to find such depth of feeling compatible with the power of minutely and publicly recording what is felt. In spite of the beauty and melody and fragrance of Loti's books his mannerisms are apt to pall upon the reader, and his later books of pure description were rather empty. His greatest successes were gained in the species of confession, half-way between fact and fiction, which he essayed in his earlier books. When all his limitations, however, have been rehearsed, Pierre Loti remains, in the mechanism of style and cadence, one of the most original and most perfect French writers of the second half of the 19th century.

In response to Pierre Loti's support for the Turkish War of Independence, the Council of Ministers had sent him a message of gratitude. In spite of his orientalist views, he received a positive critical reception from Turkish intellectuals. According to the famous poet Naz?m Hikmet, Loti's apparent criticism of Turkish society was actually an expression of his pity for the sorry state of the backward Ottoman Empire. In a 1925 poem named ?arlatan Piyer Loti (Charlatan Pierre Loti) Hikmet wrote: