Jewett's family had been residents of New England for many generations.Her father was a doctor, and Jewett often accompanied him on his rounds, becoming acquainted with the sights and sounds of her native land and its people. As treatment for rheumatoid arthritis, a condition that developed in early childhood, Jewett was sent on frequent walks and through them also developed a love of nature. In later life, Jewett often visited Boston, where she was acquainted with many of the most influential literary figures of her day; but she always returned to South Berwick, the inspiration for the towns of "Deephaven" and "Dunnet Landing" in her stories.

Jewett was educated at Miss Olive Rayne's school and then at Berwick Academy, graduating in 1865. She supplemented her education through an extensive family library. Jewett was "never overtly religious," but after she joined the Episcopalian church in 1871, she explored less conventional religious ideas. For example, her friendship with Harvard law professor Theophilus Parsons stimulated an interest in the teachings of Emanuel Swedenborg, an eighteenth-century Swedish scientist and theologian, who believed that the Divine "was present in innumerable, joined forms ... a concept underlying Jewett's belief in individual responsibility."

She published her first important story in the Atlantic Monthly at age 19, and her reputation grew throughout the 1870s and 1880s. Her literary importance arises from her careful, if subdued, vignettes of country life that reflect a contemporary interest in local color rather than plot. Jewett possessed a keen descriptive gift that William Dean Howells called "an uncommon feeling for talk ... I hear your people." Jewett made her reputation with the novella The Country of the Pointed Firs (1896). A Country Doctor (1884), a novel reflecting her father and her early ambitions for a medical career, and A White Heron (1886), a collection of short stories are among her finest work. Some of Jewett's poetry was collected in Verses (1916), and she also wrote three children's books. Willa Cather described Jewett as a significant influence on her development as a writer, and "feminist critics have since championed her writing for its rich account of women's lives and voices."

Jewett never married; but she established a close friendship with writer Annie Fields (1834-1915) and her husband, publisher James Thomas Fields, editor of the Atlantic Monthly. After the sudden death of James Fields in 1881, Jewett and Annie Fields lived together for the rest of Jewett's life in what was then termed a "Boston marriage." Some modern scholars have speculated that the two were lovers. In any case, "the two women found friendship, humor, and literary encouragement" in one another's company, traveling to Europe together and hosting "American and European literati." In France Jewett met Thérèse Blanc-Bentzon with whom she had long corresponded and who translated some of her stories for publication in France.

On September 3, 1902, Jewett was injured in a carriage accident that all but ended her writing career. She was paralyzed by a stroke in March 1909, and she died on June 24 after suffering another. The Georgian home of the Jewett family, built in 1774 overlooking Central Square at South Berwick, is now a National Historic Landmark and Historic New England museum called the Sarah Orne Jewett House.