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Peter Schneider is the son of a conductor and composer. He spent his early childhood in Königsberg and Saxony; from 1945 to 1950 he lived in Grainau near Garmisch-Partenkirchen and from 1950 in Freiburg im Breisgau. After gaining his Abitur in 1959 he studied German, History and Philosophy at the Universities of Freiburg and Munich. In 1962 he continued his studies at the Free University of Berlin. In the Federal election campaign of 1965 he worked together with a number of well-known writers in the electoral office "Wahlkampfkontor" of the SPD.

During the 1960s Schneider experienced a political radicalisation that led him to become one of the spokespersons and organisers of the Berlin German student movement. In 1967 he was involved in the preparation of the so-called "Springer-Tribunal". He was a member of a group aiming to found a proletarian political party and rouse the working-class. For this reason Schneider worked temporarily as an unskilled worker in one of the Bosch-factories. Later he taught in a private school and did freelance work in broadcasting. In 1972 he took his degree, but in 1973 the education authorities in Berlin refused to appoint him as a trainee teacher on account of his political activity. This decision was only overturned by a Berlin court decision in 1976.

Having in the meantime established himself as a writer, Schneider gave up the idea of teaching. His novel Lenz, published in 1973, had become a cult text for the Left, capturing the feelings of those disappointed by the failure of their utopian revolt. Since then, Peter Schneider has written novels, short stories and film scripts, that often deal with the fate of members of his generation. Other works deal with the situation of Berlin before and after German reunification. Schneider is also a major Essayist; having moved away from the radicalism of 1968, his work now appears predominantly in bourgeois publications. Schneider has frequently held posts as visiting professor or writer in residence at universities in the United States including Stanford, Harvard and Princeton. Since 2001, he has been the Roth Distinguished Writer-in-Residence at Georgetown University. He lives in Berlin.

Peter Schneider is a member of the German PEN-Club. He is a recipient of a Villa Massimo scholarship (1979) and the Förderpreis für Literatur des Kulturkreises of the Bundesverband der Deutschen Industrie (1983).