Stern was born in Memphis, Tennessee in 1947, the son of a grocer. He left Memphis in the 1960s to attend college, then to travel the US and Europe ... living, as he told one interviewer, "the wayward life of my generation for about a decade," and ending on a hippie commune in the Ozarks. He went on to study writing in the graduate program at the University of Arkansas, at a time when it included several notable writers who've since become prominent, including poet C.D. Wright and fiction writers Ellen Gilchrist, Lewis Nordan, Lee K. Abbott and Jack Butler.

Stern subsequently moved to London, England, before returning to Memphis in his thirties to accept a job at a local folklore center. There he learned about the city's old Jewish ghetto, The Pinch, and began to steep himself in Yiddish folklore. He published his first book, the story collection Isaac and the Undertaker's Daughter, which was based in The Pinch, in 1983. It won the Pushcart Writers' Choice Award and acclaim from some notable critics, including Susan Sontag, who praised the book's "brio ... whiplash sentences ... energy and charm," and observed that "Steve Stern may be a late practitioner of the genre" of Yiddish folklore, "but he is an expert one."

By decade's end Stern had won the O. Henry Award, two Pushcart Prize awards, published more collections, including Lazar Malkin Enters Heaven (which won the Edward Lewis Wallant Award for Jewish American Fiction) and the novel Harry Kaplan's Adventures Underground, and was being hailed by critics such as Cynthia Ozick as the successor to Isaac Bashevis Singer. Stern's 2000 collection The Wedding Jester won the National Jewish Book Award, and his novel The Angel of Forgetfulness was named one of the best books of 2005 by The Washington Post.

Stern, who teaches at Skidmore College, has also won some notable scholarly awards, including fellowships from the Fulbright and the Guggenheim foundations. He currently lives in Ballston Spa, New York, and his latest work, the novel The Frozen Rabbi,was published in 2010.