Born to a working class family, Rodney was a bright student, attending Queen's College in Guyana and then attending university on a scholarship at the University of the West Indies in Jamaica, graduating in 1963.

Rodney earned his PhD in 1966 at the School of Oriental and African Studies in London, England. His dissertation focused on the slave trade on the upper Guinea coast. The thesis was published in 1970 under the title A History of the Upper Guinea Coast, 1545-1800 and it was widely acclaimed for its originality in challenging the conventional wisdom on the area.

He traveled widely and became very well known around the world as an activist and scholar. He taught for a time in Tanzania, and later in Jamaica at his alma mater - UWI Mona. Rodney was sharply critical of the middle class for its role in the post-independence Caribbean. He was also a critic of capitalism and argued for a socialist development template. When the Jamaican government, led by prime minister Hugh Shearer, banned him, in October 1968, from ever returning to the country, because of his advocacy for the working poor in that country, riots broke out, eventually claiming the lives of several people and causing millions of dollars in damages. These riots, which started on October 16, 1968, are now known as the Rodney Riots, and they triggered an increase in political awareness across the Caribbean, especially among the Afrocentric Rastafarian sector of Jamaica, documented in his book, The Groundings With My Brothers.

Rodney became a prominent Pan-Africanist, and was important in the Black Power movement in the Caribbean and North America. While living in Dar es Salaam he was influential in developing a new centre of African learning and discussion.

Rodney's most influential book was How Europe Underdeveloped Africa, published in 1972. In it he described an Africa that had been consciously exploited by European imperialists, leading directly to the modern underdevelopment of most of the continent. The book became enormously influential as well as controversial.

In 1974 Rodney returned to Guyana from Tanzania. He was supposed to take a position as a professor at the University of Guyana but the government prevented his appointment. He became increasingly active in politics, forming the Working People's Alliance against the PNC government. In 1979 he was arrested and charged with arson after two government offices were burned.

In 1980, Rodney was killed by a bomb in his car while running for office in Guyanese elections. Rodney was survived by his wife, Pat, and three children. Walter's brother, Donald, who was injured in the explosion, said that a sergeant in the Guyana Defence Force named Gregory Smith had given Rodney the bomb that killed him. Smith fled to French Guiana after the killing, where he died in 2002.

Rodney's death was commemorated in a poem by Martin Carter entitled "For Walter Rodney" and by the dub poet Kwesi Johnson in "Reggae fi Randi."

In 2004, his widow, Patricia, and his children donated his papers to the Robert L. Woodruff Library of the Atlanta University Center. Since 2004, an annual Walter Rodney Symposium has been held each 23 March (Rodney's birthday) at the Center under the sponsorship of the Library and the Political Science Department of Clark Atlanta University, and under the patronage of the Rodney family.