Setouchi was born in Tokushima in 1922. She attended Tokyo Woman's Christian University and graduated with a degree in Japanese Literature. After a love affair with one of her husband's students, she left her house and got an official divorce to leave for T?ky? and pursue a writing career.

Setouchi's first literary award reception for Kashin was criticized as pornography. Upon being awarded the Women's Literary Prize for Natsu no Owari, she proved herself as a writer. She has also received one of Japan's more prestigious literary awards, the Tanizaki Prize for her novel Hana ni Toe in 1992. In 1973 she took up Buddhist vows and became a Buddhist nun at Ch?sonji Temple in Hiraizumi, Iwate prefecture and received her name Jakuch?.

Setouchi is also famous for her translation of the Tale of Genji.