Sylvia Townsend Warner was born at Harrow on the Hill, the only child of George Townsend Warner and his wife Eleanora (Nora) Hudleston. Her father was a house-master at Harrow School and was, for many years, associated with the prestigious Harrow History Prize which was renamed the Townsend Warner History Prize in his honour, after his death in 1916. As a child, Sylvia seemingly enjoyed an idyllic childhood in rural Devonshire, but was strongly affected by her father's death.

She moved to London and worked in a munitions factory at the outbreak of World War I. She was friendly with a number of the "Bright Young Things" of the 1920s. Her first major success was the novel Lolly Willowes.

In 1926, she met Valentine Ackland, a young poet. The two women fell in love and settled at Frome Vauchurch in Dorset. Alarmed by the growing threat of fascism, they were active in the Communist Party of Great Britain, and visited Spain during the Civil War. They lived together from 1930 until Ackland's death in 1969.

Early in her career she researched 15th and 16th century music, and spent ten years as one of the editors of the substantial Tudor Church Music. In 1934 she published along with Ackland a volume of verse called Whether a Dove or a Seagull.

Her novels were Lolly Willowes (1926), Mr Fortune's Maggot (1927), The True Heart (1929), Summer Will Show (1936), After the Death of Don Juan (1938), The Corner That Held Them (1948), The Flint Anchor (1954). These novels are remarkable in that each is so different from the other. However, recurring themes are evident in a number of her works. These include a rejection of Christianity (in Mr Fortune's Maggot, and in Lolly Willowes, where the protagonist becomes a witch); the position of women in patriarchal societies (Lolly Willowes, Summer Will Show, The Corner that Held Them); ambiguous sexuality, or bisexuality (Lolly Willowes, Mr Fortune's Maggot, Summer Will Show); and lyrical descriptions of landscape.

Her short stories, include the collections A Moral Ending and Other Stories, The Salutation, More Joy in Heaven, The Cat's Cradle Book, A Garland of Straw, The Museum of Cheats. Winter in the Air, A Spirit Rises, A Stranger with a Bag, The Innocent and the Guilty, and One Thing Leading to Another. Her final work, published a year before her death, was a series of linked short stories set in the supernatural Kingdoms of Elfin.

In addition to fiction, Warner published a well-received biography of the novelist T.H. White, which The New York Times declared "a small masterpiece which may well be read long after the writings of its subject have been forgotten." Although Townsend never wrote an autobiography, a book entitled Scenes of Childhood was compiled after her death from short reminiscences published over the years in the New Yorker. She made a translation of Contre Saint-Beuve by Marcel Proust, and after her death there were editions of her letters and diaries.

In the 1970s she became known as a significant writer of feminist or lesbian sentiment, and her novels were among the earlier ones to be revived by Virago Press. Selected letters of Sylvia Townsend Warner and Valentine Ackland have been published twice: Wendy Mulford edited a collection titled This Narrow Place in 1988, and ten years later Susanna Pinney published another selection under the title Jealousy in Connecticut.