Shlaim was born to Jewish parents in Baghdad, Iraq. His family moved to Israel, but he left Israel for England at the age of 16 to study at a Jewish school. He returned to Israel in the mid-60s to serve in the Israel Defence Forces, then moved back to England in 1966 to read history at Jesus College, Cambridge. He obtained his MA and married the great-granddaughter of David Lloyd George, who was the British prime minister at the time of the Balfour Declaration. He has lived in England ever since, and holds dual British and Israeli nationality.

He obtained an MSc (Econ.) in International Relations in 1970 from the London School of Economics, and his PhD from the University of Reading. He was a Lecturer, then Reader, in politics at the University of Reading from 1970-87.

Shlaim taught International Relations at Reading University, specializing in European issues. His academic interest in the history of Israel began in 1982, when Israeli government archives about the 1948 Arab-Israeli War were opened, an interest that deepened when he became a fellow of St. Antony's College, Oxford in 1987. He was the Alastair Buchan Reader in International Relations at Oxford from 1987 to 1996, and the Director of Graduate Studies in that subject in 1993-1995 and 1998-2001. In 1995-97, he held a British Academy Research Readership in 1995-97, a Research Professorship in 2003-6. In 2006, he was elected Fellow of the British Academy.

Shlaim served as an outside examiner on the doctoral thesis of Ilan Pappe, another notable New Historian. Shlaim's approach to the study of history is informed by his belief that, "[t]he job of the historian is to judge."

He is a regular contributor to The Guardian newspaper, and signed an open letter to that paper in January 2009 condemning Israel's military intervention in Gaza.

Josef Heller and Yehoshua Porath have stated that Shlaim "misleads his readers with arguments that Israel had missed the opportunity for peace whilst the Arabs are strictly peace seekers".