Siegfried Sassoon was born at Weirleigh hospital (which still stands) in Matfield, Kent, to a Jewish father and an Anglo-Catholic mother. His father, Alfred Ezra Sassoon (1861-1895) (son of Sassoon David Sassoon), came from the wealthy Indian Baghdadi Jewish Sassoon merchant family but was disinherited for marrying outside the faith. His mother, Theresa, belonged to the Thornycroft family, sculptors responsible for many of the best-known statues in London—her brother was Sir Hamo Thornycroft. There was no German ancestry in Sassoon's family; he owed his unusual first name to his mother's predilection for the operas of Wagner. His middle name was taken from the surname of a clergyman with whom she was friendly.

He was the second of three sons, the others being Michael and Hamo (named after his uncle). When Sassoon was four years old, his parents separated. His father would visit the boys weekly at their family home, but Theresa would lock herself in the drawing room, still deeply upset by the situation.

In 1895 Alfred Sassoon died of tuberculosis, leaving Sassoon devastated.

Sassoon was educated at The New Beacon Preparatory School, Kent, Marlborough College in Wiltshire (at Cotton House, Marlborough College), and at Clare College, Cambridge, (of which he was made an honorary fellow in 1953) where he studied both law and history from 1905 to 1907. However, he dropped out of university without a degree and spent the next few years hunting, playing cricket and privately publishing a few volumes of not very highly acclaimed poetry. His income was just enough to prevent his having to seek work, but not enough to live extravagantly. His first real success was The Daffodil Murderer, a parody of The Everlasting Mercy by John Masefield, published in 1913 under the pseudonym of "Saul Kain". Robert Graves, in his autobiography, describes this as a "parody of Masefield which, midway through, had forgotten to be a parody and turned into rather good Masefield."

Motivated by patriotism, Sassoon joined the British Army just as the threat of World War I was realised and was in service with the Sussex Yeomanry on the day the United Kingdom declared war (4 August 1914). He broke his arm badly in a riding accident and was put out of action before even leaving England, spending the spring of 1915 convalescing. At around this time his younger brother Hamo was killed in the Gallipoli Campaign (Rupert Brooke, whom Siegfried had briefly met, died on the way there); Hamo's death hit Siegfried very hard. He was commissioned into 3rd Battalion (Special Reserve), Royal Welch Fusiliers as a second lieutenant on 29 May 1915, and in November, he was sent to the 1st Battalion in France. He was thus brought into contact with Robert Graves and they became close friends. United by their poetic vocation, they often read and discussed one another's work. Though this did not have much perceptible influence on Graves's poetry, his views on what may be called 'gritty realism' profoundly affected Sassoon's concept of what constituted poetry. He soon became horrified by the realities of war, and the tone of his writing changed completely: where his early poems exhibit a Romantic dilettantish sweetness, his war poetry moves to an increasingly discordant music, intended to convey the ugly truths of the trenches to an audience hitherto lulled by patriotic propaganda. Details such as rotting corpses, mangled limbs, filth, cowardice and suicide are all trademarks of his work at this time, and this philosophy of 'no truth unfitting' had a significant effect on the movement towards Modernist poetry.

Sassoon's periods of duty on the Western Front were marked by exceptionally brave actions, including the single-handed capture of a German trench in the Hindenburg Line. He often went out on night-raids and bombing patrols and demonstrated ruthless efficiency as a company commander. Deepening depression at the horror and misery the soldiers were forced to endure produced in Sassoon a paradoxically manic courage, and he was nicknamed "Mad Jack" by his men for his near-suicidal exploits. On 27 July 1916 he was awarded the Military Cross; the citation read:

2nd Lt. Siegfried Lorraine Sassoon, 3rd (attd. 1st) Bn., R. W. Fus.

For conspicuous gallantry during a raid on the enemy's trenches. He remained for 1½ hours under rifle and bomb fire collecting and bringing in our wounded. Owing to his courage and determination all the killed and wounded were brought in.

He was also (unsuccessfully) recommended for the Victoria Cross for the capture of the German trench.

Despite his decoration and reputation, he decided in 1917 to make a stand against the conduct of the war. One of the reasons for his violent anti-war feeling was the death of his friend, David Cuthbert Thomas (called "Dick Tiltwood" in the Sherston trilogy). He would spend years trying to overcome his grief.

At the end of a spell of convalescent leave, Sassoon declined to return to duty; instead, encouraged by pacifist friends such as Bertrand Russell and Lady Ottoline Morrell, he sent a letter to his commanding officer, titled A Soldier’s Declaration. Forwarded to the press and read out in Parliament by a sympathetic MP, the letter was seen by some as treasonous ("I am making this statement as an act of wilful defiance of military authority") or at best condemnatory of the war government's motives ("I believe that the war upon which I entered as a war of defence and liberation has now become a war of aggression and conquest"). Rather than court-martial Sassoon, the Under-Secretary of State for War, Ian Macpherson decided that he was unfit for service and had him sent to Craiglockhart War Hospital near Edinburgh, where he was officially treated for neurasthenia ("shell shock"). Before declining to return to active service he had thrown the ribbon from his Military Cross into the river Mersey.

The novel Regeneration, by Pat Barker, is a fictionalised account of this period in Sassoon's life, and was made into a film starring James Wilby as Sassoon and Jonathan Pryce as W. H. R. Rivers, the psychiatrist responsible for Sassoon's treatment. Rivers became a kind of surrogate father to the troubled young man, and his sudden death in 1922 was a major blow to Sassoon.

At Craiglockhart, Sassoon met Wilfred Owen, a fellow poet who would eventually exceed him in fame. It was thanks to Sassoon that Owen persevered in his ambition to write better poetry. A manuscript copy of Owen's Anthem for Doomed Youth containing Sassoon's handwritten amendments survives as testimony to the extent of his influence and is currently on display at London's Imperial War Museum. To all intents and purposes, Sassoon became to Owen "Keats and Christ and Elijah"; surviving documents demonstrate clearly the depth of Owen's love and admiration for him. Both men returned to active service in France, but Owen was killed in 1918. Sassoon, despite all this, was promoted to lieutenant, and having spent some time out of danger in Palestine, eventually returned to the Front and was almost immediately wounded again...by friendly fire, but this time in the head...and spent the remainder of the war in Britain. By this time he had been promoted acting captain. He relinquished his commission on health grounds on 12 March 1919, but was allowed to retain the rank of captain. After the war, Sassoon was instrumental in bringing Owen's work to the attention of a wider audience. Their friendship is the subject of Stephen MacDonald's play, Not About Heroes.

The war had brought Sassoon into contact with men from less advantaged backgrounds, and he had developed Socialist sympathies. Having lived for a period at Oxford, where he spent more time visiting literary friends than studying, he dabbled briefly in the politics of the Labour movement, and in 1919 took up a post as literary editor of the socialist Daily Herald. During his period at the Herald, Sassoon was responsible for employing several eminent names as reviewers, including E. M. Forster and Charlotte Mew, and commissioned original material from "names" like Arnold Bennett and Osbert Sitwell. His artistic interests extended to music. While at Oxford he was introduced to the young William Walton, whose friend and patron he became. Walton later dedicated his Portsmouth Point overture to Sassoon in recognition of his financial assistance and moral support.

Sassoon later embarked on a lecture tour of the USA, as well as travelling in Europe and throughout Britain. He acquired a car, a gift from the publisher Frankie Schuster, and became renowned among his friends for his lack of driving skill, but this did not prevent him making full use of the mobility it gave him.

Meanwhile, he was beginning to express his homosexuality more openly, embarking on an affair with artist Gabriel Atkin, to whom he had been introduced by mutual friends. During his US tour, he met a young actor who treated him callously. Nevertheless, he was adored by female audiences, including one at Vassar College.

Sassoon was a great admirer of the Welsh poet Henry Vaughan. On a visit to Wales in 1923, he paid a pilgrimage to Vaughan's grave at Llansanffraid, Powys, and there wrote one of his best-known peacetime poems, At the Grave of Henry Vaughan. The deaths of three of his closest friends, Edmund Gosse, Thomas Hardy and Frankie Schuster (the publisher), within a short space of time, came as another serious setback to his personal happiness.

At the same time, Sassoon was preparing to take a new direction. While in America, he had experimented with a novel. In 1928, he branched out into prose, with Memoirs of a Fox-Hunting Man, the anonymously-published first volume of a fictionalised autobiography, which was almost immediately accepted as a classic, bringing its author new fame as a humorous writer. The book won the 1928 James Tait Black Award for fiction. Sassoon followed it with Memoirs of an Infantry Officer (1930) and Sherston's Progress (1936). In later years, he revisited his youth and early manhood with three volumes of genuine autobiography, which were also widely acclaimed. These were The Old Century, The Weald of Youth and Siegfried's Journey.

Sassoon, having matured greatly as a result of his military service, continued to seek emotional fulfillment, initially in a succession of love affairs with men, including the actor Ivor Novello; Novello's former lover, the actor Glen Byam Shaw; German aristocrat Prince Philipp of Hesse; the writer Beverley Nichols; and an effete aristocrat, the Hon. Stephen Tennant.. Only the last of these made a permanent impression, though Shaw remained his close friend throughout his life. In December 1933, to many people's surprise, Sassoon married Hester Gatty, who was many years his junior; this led to the birth of a child, something which he had long craved. This child, their only child, George (1936-2006) became a noted scientist, linguist and author, and was adored by Siegfried, who wrote several poems addressed to him. However, the marriage broke down after World War II, Sassoon apparently unable to find a compromise between the solitude he enjoyed and the companionship he craved.

Separated from his wife in 1945, Sassoon lived in seclusion at Heytesbury in Wiltshire, although he maintained contact with a circle which included E. M. Forster and J. R. Ackerley. One of his closest friends was the young cricketer Dennis Silk. He formed a close friendship with Vivien Hancock, headmistress of Greenways School at Ashton Gifford, which his son George attended. The relationship provoked Hester to make some strong accusations against Vivien Hancock, who responded with the threat of legal action. Sassoon was appointed Commander of the Order of the British Empire in the 1951 New Year Honours. Towards the end of his life, he converted to Roman Catholicism, and was admitted to the faith at Downside Abbey, close to his home. He also paid regular visits to the nuns at Stanbrook Abbey, and the abbey press printed commemorative editions of some of his poems. During this time he also became interested in the supernatural, and joined the Ghost Club.

He died seven days before his 81st birthday of stomach cancer, and is buried at St Andrew's Church, Mells, Somerset, close to Ronald Knox, a Roman Catholic priest and writer whom he admired.

On 11 November 1985, Sassoon was among sixteen Great War poets commemorated on a slate stone unveiled in Westminster Abbey's Poet's Corner. The inscription on the stone was written by friend and fellow War poet Wilfred Owen. It reads: "My subject is War, and the pity of War. The Poetry is in the pity."

Siegfried Sassoon's only child, George Sassoon, died of cancer in 2006. George had three children, two of whom were killed in a car crash in 1996. His daughter by his first marriage, Kendall Sassoon, has two children of her own with her partner, Stewart Reeves. They are Oliver Thornycroft Reeves-Sassoon and Logan Thea Reeves-Sassoon. Kendall is Patron-in-Chief of the Siegfried Sassoon Fellowship, and a Lady Associate Royal Welch Fusilier.

In May 2007 Sassoon's Military Cross was put up for sale by his family. It was bought by the Royal Welch Fusiliers for display at their museum in Caernarfon.

In June 2009, the University of Cambridge announced plans to purchase a valuable archive of Sassoon's papers from his family. The intention is to add these to the university library's existing Sassoon collection. On 4 November 2009 it was reported that this purchase would be supported by £550,000 from the National Heritage Memorial Fund, meaning that the University still needed to raise a further £110,000 on top of the monies already received in order to meet the full £1.25 million asking price. The funds were successfully raised, and in December 2009 it was announced that the University had received the papers. Included in the collection are war diaries kept by Sassoon while he served on the Western Front and in Palestine, a draft of "A Soldier’s Declaration" (1917), notebooks from his schooldays, and post-war journals. Other items in the collection include love letters to his wife Hester, and photographs and letters from other writers. Sassoon was an undergraduate at the university, as well as being made an honorary fellow of Clare College, and the collection will be housed at the Cambridge University Library. As well as private individuals, funding came from the Monument Trust, the JP Getty Jr Trust, and Sir Siegmund Warburg's Voluntary Settlement.

Several of Sassoon's poems have been set to music, some during his lifetime, notably by Cyril Rootham.