Holden was one of three sons born to Robert Lee Holden and Grace Holden née Davis in Coolidge, Texas. The Holden and Davis families moved west toward Colorado City, Texas. He was reared on a farm near Rotan, Texas, where he completed high school in 1914.

He procured teacher certification through now-closed Stamford Junior College in Stamford, Texas. In 1915, he accepted a position in Pleasant Valley, Texas, where he was the only instructor of forty-seven students in nine classes. He organized a literary club and basketball teams and led the students to victory in the county interscholastic meeting.

Holden studied Texas history under Professor Joseph A. Hill at West Texas Normal College (now West Texas A&M University) in Canyon, Texas, during the summers of 1917 and 1918. During World War I, Holden served in the Eighty-sixth United States Army Infantry at San Antonio.

After his military service, Holden obtained a job as principal at his alma mater, Rotan High School. Soon thereafter, he left to position and entered the University of Texas, where he studied under the historian Eugene C. Barker. He was also heavily influenced by Professor Walter Prescott Webb, author of The Great Plains. During most of the 1920s, Holden taught history at the college level while still continuing his own studies at the University of Texas, where he eventually earned his bachelor's, master's, and Ph.D. degrees. He later studied briefly at the University of Chicago and the University of Colorado.

In 1923, Holden organized and chaired the history department at the newly established McMurry College (now McMurry University), a Methodist-affiliated institution in Abilene, Texas. He encouraged his students to collect and preserve family and regional histories, including newspapers. He would utilize these materials in writing his doctoral dissertation, published in 1930 under the name Alkali Trails. He also launched a course at McMurry in archeology and took students to research sites along the Canadian River. He, along with Rupert N. Richardson, president of Hardin-Simmons University in Abilene, was among the original co-founders of the West Texas Historical Association, originally based in Abilene but relocated to Lubbock in 1998.

In 1929, Holden joined the faculty of Texas Technological College (now Texas Tech University) to instruct history and anthropology. He remained there for more than four decades. He became chairman of the history department in 1936. Holden Hall, the location of the original Museum of Texas Tech University and now used for classrooms and offices, was named in his honor in 1972. This was the first such honor accorded to a living member of the faculty. A bronze bust of Holden, created by Lubbock sculptor Glenna Goodacre, was unveiled in the museum rotunda.

In 1938, Holden was named dean and director of anthropological, historical, and social-science research. Holden was elevated to dean of the Texas Tech Graduate School in 1945, a position that he retained until 1950. He launched an accredited program in four doctoral fields, including history. He received the Distinguished Faculty Emeritus Award of the College of Arts and Sciences and, in 1965, was named Distinguished Director Emeritus of the Museum at Texas Tech University.

Building the Museum of Texas Tech University

In 1935, Holden organized the West Texas Museum Association and sought funds from the Texas Centennial Commission for the West Texas Museum (now known as the Museum of Texas Tech University). He led a "march to Austin" to convince the legislature to fund $160,750 for the facility, but only $25,000 was forthcoming. With private funds and university matching, the first museum building was dedicated in 1950 to coincide with the 25th anniversary of the institution.

The museum first focused on the Southwestern region with exhibits on history, science, and art. Artist Peter Hurd was commissioned in 1952 to paint a fresco in the rotunda at the entrance to the museum to depict life on the South Plains between 1890 and 1925.

In 1955, Holden, J. Evetts Haley, and other historians organized the Southwest Collection and Archives, which contained West Texas ranch records that he had collected over the years. One feature of the Museum of Texas Tech University is the outdoor National Ranching Heritage Center, which has been assembled over the years from ranches throughout the South Plains and Panhandle.

Excavations undertaken in 1930 and 1931 in the Texas Panhandle uncovered the Saddleback and Antelope Creek ruins on the Canadian River. In 1932, Holden directed a field school at the Tecolote ruin near Las Vegas, New Mexico. In 1933, 1935, and 1937, he uncovered the Arrowhead Ruin, including a rare D-shaped kiva. Holden's students excavated and restored this Early Glaze-period pueblo ruin located east of Santa Fe, New Mexico. In 1950, he directed excavations at the Bonnell site near Ruidoso, New Mexico, on a mesa ruin similar to the Antelope Creek site. In 1937, Holden found evidence of Southwestern prehistoric culture at Murrah Cave on the lower Pecos River. In 1938, he investigated Blue Mountain Cave west of Odessa, Texas. In 1940, he investigated Fingerpoint Cave in Borden County, Texas.

Holden's most significant archeological discovery occurred near his home in Lubbock in 1937, when two of his students found a Paleo-Indian flint point in Yellow House Draw. The flint point was on the bank of a small natural lake that the city was dredging to open an ancient spring. Holden played a crucial role in the long struggle to preserve the site. In 1989, the site was designated the Lubbock Lake National Historic and State Archeological Landmark.

Holden led archeological field trips to Mexico in 1934, 1936, 1938, and 1940. In the spring of 1934, he took students on an expedition to study the bellicose Yaqui of the state of Sonora. Texas Tech sponsored a second expedition in 1935. Thereafter, Holden published Studies of the Yaqui Indians of Sonora, Mexico. The report touches on Yaqui education, marriage, child-rearing, and household economy.

Holden was twice married. His first wife, Olive Holden née Price (1903—1937) died only eleven years after their marriage. Their only child, Jane Holden Kelley, became a professor of archaeology at the University of Calgary in Alberta, Canada. Olive assisted her husband in the development of the anthropology program at Texas Tech University and in the design and construct of an adobe house near the campus.

On March 26, 1939, Holden married Frances Virginia "Fran" Holden née Mayhugh, a native of Running Water in Hale County, Texas. She graduated from Plainview High School and received a master of arts degree in history from Texas Tech in 1940. She was associate director of the Museum of Texas Tech University from 1940 to 1965. She founded the museum's Southwestern Art Collection and the Women's Council.

Holden retired from Texas Tech in 1970. During his retirement, Holden and Frances built adobe houses in Pueblo-revival style. These buildings are listed in the National Register of Historic Places and are designated as state and city archaeological and historic landmarks.

Holden died on April 21, 1993, at the age of ninety-six. His younger brother, Tom Calloway Holden of Kerrville, Texas, a retired educator, died on August 4, 2007, at the age of 103, and Frances Holden died only 16 days later.

William and Frances Holden are interred in the family plot with his parents and first wife at the City of Lubbock Cemetery. Frances's grave is not specifically marked. They were Methodist.

Holden authored or coauthored more than twelve books and forty-two articles and pamphlets in professional and commercial journals. Four works focused on the Yaqui Indians. His only novel, Hill of the Rooster, published in 1956, traces the life of a woman called "Chepa" during the Yaqui rebellion of 1926-1927. Holden also wrote Teresita (1978), which describes the life of Teresa Urrea, a Mexican folk healer.

Other Holden books included:

• A Yaqui Life (coauthored in 1971 with daughter Jane Holden Kelley)
• Rollie Burns (1932)
• Spur Ranch (1934)
• A Ranching Saga: The Lives of William Electious Halsell and Ewing Halsell