Raised on a Georgia plantation, Thompson first pursued a career as a lawyer. In 1871 he opened a law practice with his brother, William Henry Thompson. He was drawn away from the field of law by the success of articles and short stories published in the New York Tribune, Atlantic Monthly, and Harper's Monthly.

As a writer, Thompson became well known as a local colorist, his works ranging from local history to articles about archery. His first book, Hoosier Mosaics, published in 1875, was a collection of short stories illustrating the people and atmosphere of small Indiana towns. He followed it with a successful compilation of his published essays, The Witchery of Archery, which was well received for its wit and use of common language. At this same time, Thompson also published several collections of naturalistic poetry, though they weren't well received at the time.

Thompson wrote the poem "To the South" that was reprinted in George Washington Cable's influential and controversial essay, "The Freedmen's Case in Equity" in 1885. This poem expressed Thompson's reaction to the freeing of the slaves, and implied that some other Southerners were not as angry about the overturning of that institution as Northerners presumed. The Freedman's Case in Equity at etext.virginia.edu

Through the 1880s, Thompson moved into the realm of fiction. His early works featured the common thread of simple southern life, taken mostly from Thompson's childhood. With his 1886 semi-autobiographical novel, A Banker of Bankersville, he returned to his Indiana roots. Arguably his most successful and well-known novel came with 1900's Alice of Old Vincennes. The novel vividly depicted Indiana during the Revolutionary War.

Thompson died shortly after its publication, on February 15, 1901, of pneumonia, aged 56.