Wolfe was born in Asheville, North Carolina, the youngest of eight children of William Oliver Wolfe (1851–1922) and Julia Elizabeth Westall (1860–1945). His siblings were sister Leslie E. Wolfe (1885–1886); Effie Nelson Wolfe (1887–1950); Frank Cecil Wolfe (1888–1956); Mabel Elizabeth Wolfe (1890–1958); Grover Cleveland Wolfe (1892–1904); Benjamin Harrison Wolfe (1892–1918); and Frederick William Wolfe (1894–1980). Six of the children lived to adulthood.

The Wolfes lived at 92 Woodfin Street, where Tom was born. His father was a successful stone carver who ran a gravestone business. His mother took in boarders and was active in acquiring real estate. In 1904, she opened a boarding house in St. Louis, for the World's Fair. While the family was in St. Louis, 12-year-old Grover died of typhoid fever.

In 1906, Julia Wolfe bought a boarding house named "Old Kentucky Home" at nearby 48 Spruce Street in Asheville. She took up residence there with her youngest son, while the rest of the family remained at the Woodfin Street residence. Wolfe lived in the boarding house on Spruce Street until he went to college in 1916. It is now the Thomas Wolfe Memorial. Wolfe was closest to his brother Ben, who died an early death at age 26 chronicled in Look Homeward, Angel. Julia Wolfe bought and later sold many properties, eventually becoming a successful real estate speculator.

Wolfe began to study at the University of North Carolina at Chapel Hill (UNC) when he was 15 years old; he was a member of the Dialectic Society and Pi Kappa Phi fraternity and predicted that his portrait would one day hang in Old West near that of North Carolina governor Zebulon Vance, which it does today. Wolfe's first literary aspiration was to be a playwright, and in the fall of 1919, he enrolled in a playwriting course. His one-act play, The Return of Buck Gavin, was performed by the newly-formed Carolina Playmakers, then composed of classmates in Frederick Koch's playwriting class, with Wolfe acting the title role. He edited UNC's student newspaper The Daily Tar Heel and won the Worth Prize for Philosophy for an essay titled The Crisis in Industry. Another of his plays, The Third Night, was performed by the Playmakers in December 1919. Wolfe was inducted into the Golden Fleece honor society.

He graduated from UNC with a B.A. degree in June 1920. In September of that year, he entered the Graduate School for Arts and Sciences at Harvard University, where he studied playwriting under George Pierce Baker. Two versions of Wolfe's play The Mountains were performed by Baker's 47 Workshop in 1921.

In 1922, Wolfe received his Master's degree from Harvard. His father died in June of that year, in Asheville, an event that would influence his writing. Wolfe continued to study for another year with Baker in the 47 Workshop, which produced his ten-scene play Welcome to Our City in May 1923.

Wolfe went to New York City, in November 1923, and solicited funds for UNC while trying to sell his plays to Broadway. In February 1924, he began teaching English as an instructor temporarily at New York University (NYU), a position he occupied periodically for almost seven years.

Unable to sell any of his plays after three years due to their excessive length, including a close call when the Theatre Guild came very close to producing his play Welcome to Our City before ultimately rejecting it, Wolfe found his writing style more suited to fiction than the stage. He sailed to Europe in October 1924 to continue writing. From England he traveled to France, Italy and Switzerland. On his return voyage in 1925, he met Aline Bernstein (1882—1955), a scene designer for the Theatre Guild. Bernstein, 18 years his senior, was married to a successful stock broker with whom she had two children.

In October 1925, Wolfe and Bernstein became lovers and remained so for five years. Their affair was turbulent and sometimes combative, but she was a powerful influence encouraging and funding his writing. He returned to Europe in the summer of 1926 and began writing the first version of a novel, O Lost, which eventually evolved into Look Homeward, Angel. It was an autobiographical novel that fictionalized his early experiences in Asheville, the narrative chronicling family, friends and the boarders at his mother's establishment on Spruce Street. In the book, he renamed the town Altamont and called the boarding house "Dixieland." His family was fictionalized under the name Gant, with Wolfe calling himself Eugene, his father Oliver, and his mother Eliza.

The original manuscript of O Lost was over 100 pages and 66,000 words longer and considerably more experimental in character than the final edited version of Look Homeward, Angel. The editing was done by Maxwell Perkins at Scribner's, the most prominent book editor of the time, who also worked with Ernest Hemingway and F. Scott Fitzgerald. Initially, Wolfe expressed gratitude to Perkins for his disciplined editing. It has been said that Wolfe found a father figure in Perkins, who had five daughters and found in Wolfe a sort of foster son relationship. Perkins cut the book to focus more on the character of Eugene, a stand-in for Wolfe himself.

When the novel was published 11 days before the stock market crash of 1929, Wolfe dedicated it to Bernstein. Soon after the book's publication, Wolfe returned to Europe and ended his affair with Bernstein. The publication of the novel caused a stir in Asheville, with its over 200 thinly disguised local characters. Wolfe chose to stay away from Asheville for eight years due to the uproar, and he traveled to Europe for a year on a Guggenheim fellowship. Look Homeward, Angel was a bestseller in the United Kingdom and Germany. Some members of Wolfe's family were also upset with their portrayal in the book, but his sister Mabel wrote to him that she was sure he had the best of intentions.

After four more years writing in Brooklyn, the second novel Wolfe submitted to Scribner's was The October Fair, a multi-volume epic roughly the length of Marcel Proust's In Search of Lost Time. After considering the commercial possibilities of publishing the book in full, Perkins opted to cut it down extremely and create a single, bestseller-sized volume, which would be titled Of Time and the River. This novel was more commercially successful than Look Homeward, Angel. In a twist from the publication of his previous novel, the citizens of Asheville were more upset this time around if they hadn't been included than if they had. The character of Esther Jack was based on Bernstein.

Wolfe left Scribner's and signed with Harper and Row. By some historic accounts, it was Perkins' severe editing of Wolfe's work that prompted him to leave the Scribner imprint; other accounts describe Wolfe's growing resentment that his success was attributed by some to the efforts of Perkins. In 1936, Bernard DeVoto published "Genius is Not Enough," a scathing essay on Look Homeward, Angel, in which DeVoto vehemently concluded that Wolfe’s work was “hacked and shaped and compressed into something resembling a novel by Mr. Perkins and the assembly-line at Scribners". The effect of this essay on Wolfe's self-confidence was perhaps the greatest influence on his cutting ties with Scribners and Perkins shortly before his death in 1938.

Wolfe has spent much time in Europe and was especially popular and at home in Germany, where he had many friends; however, in 1936, he witnessed discriminatory incidents towards Jewish people that upset him and changed his mind about the country. Wolfe returned to America and published a short story chronicling the incidents called "I Have a Thing to Tell You" in The New Republic. Following the publication, Wolfe's books were banned by the German government and he was banned from traveling there. Wolfe did return to Asheville in the summer of 1937 for the first time since the publication of his first book.

In 1938, after turning in a large body of manuscript materials, over one million words, to his new editor, Edward Aswell, Wolfe left New York for a tour of the West. On the way, he stopped at Purdue University and gave a lecture, Writing and Living, then spent two weeks traveling through 11 national parks in the West, the only part of the country he had never visited before. Wolfe wrote to Aswell that while he had focused on his family in his previous writing, he would now take a more global perspective. In July, Wolfe became ill with pneumonia while visiting his brother Fred in Seattle, spending three weeks in the hospital there. His sister Mabel closed her boardinghouse in Washington, DC and went to Seattle to care for him. Complications arose, and Wolfe was eventually diagnosed with miliary tuberculosis of the brain.

On September 6, he was sent to Baltimore's Johns Hopkins Hospital for treatment under the most famous neurosurgeon in the country, Dr. Walter Dandy, but an attempt at a life-saving operation revealed the disease had overrun the entire right side of his brain. Without regaining consciousness, he died 18 days before his 38th birthday. His last writing, a journal of his two-week trip through the national parks, was found in his belongings hours after his death.

Despite his disagreements with Perkins and Scribner's, on his deathbed Wolfe wrote a deeply moving letter to Perkins, whom he considered to be his closest friend. He acknowledged that Perkins had helped to realize his work and had made his labors possible. In closing he wrote:

"I shall always think of you and feel about you the way it was that Fourth of July day three years ago when you met me at the boat, and we went out on the cafe on the river and had a drink and later went on top of the tall building, and all the strangeness and the glory and the power of life and of the city was below."

Thomas Wolfe is interred in Riverside Cemetery, Asheville, North Carolina, beside his parents, W.O. and Julia Wolfe. Another famous author, William Porter, is also interred in Riverside.

The next day, The New York Times wrote: "His was one of the most confident young voices in contemporary American literature, a vibrant, full-toned voice which it is hard to believe could be so suddenly stilled. The stamp of genius was upon him, though it was an undisciplined and unpredictable genius.... There was within him an unspent energy, an untiring force, an unappeasable hunger for life and for expression which might have carried him to the heights and might equally have torn him down." Time wrote: "The death last week of Thomas Clayton Wolfe shocked critics with the realization that, of all American novelists of his generation, he was the one from whom most had been expected." Due to his early death, Wolfe spent the shortest amount of time writing of any major novelist during that time, with a career less than half as long as Fitzgerald, Hemingway, or Faulkner.

Wolfe saw less than half of his work published in his lifetime, due to the amount of the material he left at his death. He was the first American writer to leave two complete, unpublished novels in the hands of his publisher at death. Two further Wolfe novels, The Web and the Rock and You Can't Go Home Again, were published posthumously by Perkins, who was the literary executor of Wolfe's estate. They were editorially mined out of his October Fair manuscript by Edward Aswell of Harper and Row. The novels were "two of the longest one-volume novels (some 700 pages apiece) ever written." In these novels, Wolfe switched his autobiographical character from Eugene Gant to George Webber.

O Lost, the original "author's cut" of Look Homeward, Angel, was reconstructed by F. Scott Fitzgerald scholar Matthew Bruccoli and published in 2000 on the centennial of Wolfe's birth. Bruccoli said that while Perkins was a talented editor, Look Homeward, Angel is inferior to the complete work of O Lost and that the publication of the complete novel "marks nothing less than the restoration of a masterpiece to the literary canon." The October Fair manuscript was so scattered among editors during their various operations upon it, that it cannot be reconstructed, and readers will never know what Wolfe intended for that immense work.

Upon the publication of Look Homeward, Angel, most reviewers found it favorable, including John Chamberlain, Carl Van Doren, and Stringfellow Barr. Margaret Wallace wrote in The New York Times Book Review that Wolfe had produced "as interesting and powerful a book as has ever been made out of the drab circumstances of provincial American life." An anonymous review published in Scribner's magazine compared Wolfe to Walt Whitman, and many other reviewers and scholars have found similarities in their works since.

When published in the UK in July 1930, the book was met with similar reviews. Richard Aldington wrote that the novel was "the product of an immense exuberance, organic in its form, kinetic, and drenched with the love of life... I rejoice over Mr. Wolfe." Both in his 1930 Nobel Prize for Literature acceptance speech and original press conference announcement, Sinclair Lewis, the first American to win the Nobel for literature, said of Wolfe, "He may have a chance to be the greatest American writer.... In fact I don't see why he should not be one of the greatest world writers."

Upon the publication of his second novel, most reviewers and the public were supportive, while some critics finding shortcomings while still hailing it for moments or aspects of greatness. The book was well-received by the public and became his only American bestseller. The publication was viewed as "the literary event of 1935" and in comparison, the attention given to Look Homeward, Angel was modest. Both The New York Times and New York Herald Tribune published enthusiastic front page reviews. Clifton Fadiman wrote in The New Yorker that while he wasn't sure what he thought of the book, "for decades we have not had eloquence like his in American writing." Malcolm Cowley of The New Republic thought the book would be twice as good if half as long, but stated Wolfe was "the only contemporary writer who can be mentioned in the same breath as Dickens and Dostoevsky." Robert Penn Warren thought Wolfe produced some brilliant fragments from which "several fine novels might be written." He went on to say: "And meanwhile it may be well to recollect that Shakespeare merely wrote Hamlet; he was not Hamlet." Warren also praised Wolfe in the same review, though, as did John Donald Wade in a separate review.

While acclaimed when alive as one of the most important American writers of equal quality to F. Scott Fitzgerald, Hemingway, and Faulkner, Wolfe's reputation has been "all but destroyed" since his death, although The New York Times wrote in 2003 that Wolfe's reputation and related scholarship seemed to be on an "upswing." He is usually left out of college courses and anthologies devoted to great writers. Faulkner and W.J. Cash listed Wolfe as the ablest writer of their generation, although Faulkner later qualified his praise.

Two universities hold the primary archival collections of Thomas Wolfe materials in the United States: the Thomas Clayton Wolfe Papers at Harvard University's Houghton Library, which includes all of Wolfe's manuscripts, and the Thomas Wolfe Collections in the North Carolina Collection at the University of North Carolina at Chapel Hill. UNC-Chapel Hill presents the annual Thomas Wolfe Prize and Lecture each October at the time of Wolfe's birthday to a contemporary writer, with past recipients including Roy Blount, Jr., Robert Morgan, and Pat Conroy.

The "Old Kentucky Home" was donated by Wolfe's brother Fred as the Thomas Wolfe Memorial and has been open to visitors since the 1950s, owned by the state of North Carolina since 1976 and designated as a National Historic Landmark. In 1998, 200 of the house's 800 original artifacts and the house's dining room were destroyed in an act of arson during the Bele Chere street festival, the perpetrators still unknown. After a $2.4 million restoration, the house was re-opened in 2003. Return of an Angel, by Sandra Mason, is a play that explores the reactions of Wolfe's family and the citizens of his hometown of Asheville to the publication of his novel, Look Homeward, Angel. It is produced annually in October, next door to the Thomas Wolfe Memorial, in celebration of Wolfe's birthday. Asheville's library, the Pack Memorial Library, hosts the Thomas Wolfe Collection which "honors Asheville's favorite son." The Western North Carolina Historical Association has presented the Thomas Wolfe Memorial Literary Award yearly since 1955 for a literary achievement of the previous year. The Thomas Wolfe Society was formed to celebrate Wolfe's writings and publishes an annual review about Wolfe's work. The United States Postal Service honored Wolfe with a postage stamp on the occasion of what would have been Wolfe's 100th birthday in 2000.

Wolfe inspired the works of many other authors, including Betty Smith with A Tree Grows in Brooklyn, Robert Morgan, author of Gap Creek, and Prince of Tides author Pat Conroy, who has said, "My writing career began the instant I finished Look Homeward, Angel." Jack Kerouac idolized Wolfe. Ray Bradbury was both influenced by and included Wolfe as a character in his books.

In 1958, Ketti Frings adapted Look Homeward, Angel into a play of the same name. It ran on Broadway for 564 performances at the Ethel Barrymore Theatre, received six Tony Award nominations, and won the 1958 Pulitzer Prize for Drama. Frings was named "Woman of the Year" by The Los Angeles Times in the same year. In 1972, it was presented as a television drama, as was Of Time and the River in a one-hour version.

Wolfe's play Welcome to Our City was produced twice at Harvard during his graduate school years, in Zurich in German during the 1950s, and by the Mint Theater in New York City in 2000 in celebration of Wolfe's 100th birthday.