Fontane was born in Neuruppin into a Huguenot family. At the age of sixteen he was apprenticed to an apothecary, his father's profession, subsequently becoming an apothecary himself, and in 1839, at the age of 20, wrote his first work (Heinrichs IV. erste Liebe, now lost). His further education was in Leipzig where he came into contact with the progressives of the Vormärz. Fontane's first published work, the novella Geschwisterliebe (or "Sibling Love"), appeared in the Berlin Figaro in December 1839.

His biographer Gordon A. Craig in Theodor Fontane: Literature and History in the Bismarck Reich (Oxford University Press, 1999) observes that this work gave few indications of his promise as a gifted writer: "Although the theme of incest, which was to occupy Fontane on later occasions, is touched upon here, the mawkishness of the tale... is equaled by the lameness of its plot and the inertness of the style in which it is told, and [the characters] Clärchen and her brother are both so colorless that no one could have guessed that their creator had a future as a writer."

His first job as apothecary was in Dresden after which he returned to his father's shop, now in the provincial town of Letschin in the Oderbruch region. Fleeing the provincial atmosphere there, Fontane published articles in the Leipzig newspaper Die Eisenbahn and translated Shakespeare. In 1843, he joined a literary club called Tunnel über der Spree (i.e. Tunnel over the river Spree) in Berlin where he came into contact with many of the most renowned German writers such as Theodor Storm, Joseph von Eichendorff and Gottfried Keller.

In 1844 Fontane enrolled in the Prussian army and set out on the first of numerous journeys to England which fostered his interest in Old English ballads, a form he began to imitate then. At that time he became engaged to his future wife, Emilie Rouanet-Kummer, whom he had first met when still at school.

He briefly participated in the revolutionary events of 1848. In 1849 he quit his job as an apothecary and became a full-time journalist and writer. In order to support his family he took a job as a writer for the Prussian intelligence agency Zentralstelle für Presseangelegenheiten which was meant to influence the press towards a German national cause.

Again he specialised in British affairs, and the agency sent him as correspondent to London for a couple of years where he was later joined by his wife and two sons. While still in London he quit his government job and, on his return to Berlin, became editor of the conservative Kreuzzeitung.

His books about Britain include Ein Sommer in London (1854); Aus England, Studien und Briefe (1860) and Jenseits des Tweed, Bilder und Briefe aus Schottland (1860). At the period, and following the fashion of Walter Scott, traditional British stories were still en vogue on the continent. His Gedichte (1851) and ballads Männer und Helden (1860) tell of Britain's glories in days gone by.

Back in Germany, Fontane became particularly interested in the Mark Brandenburg region. He was especially proud of its past achievements and delighted in the growth of its capital city, Berlin. His fascination with the countryside surrounding Berlin may be seen in his delightfully picturesque Wanderungen durch die Mark Brandenburg (1862-1882, 5 vols.) in which he successfully transposed his former fascination with British historical matters to his native soil.

In 1870, he quit his job at the Kreuzzeitung and became drama critic for the liberal Vossische Zeitung, a job he kept until retirement. He had already written about Prussia's war against Denmark in Der schleswig-holsteinische Krieg im Jahre 1864 (1866) and the Austro-Prussian War in Der deutsche Krieg von 1866 (1869). He proceeded to the Franco-Prussian War in 1870, and, being taken prisoner at Vaucouleurs, he remained in French captivity for three months. His experiences there are set down in Kriegsgefangen Erlebtes 1870 (1871); subsequently he published his observations on the campaign in Der Krieg gegen Frankreich 1870-71 (1874-1876).

At the ripe age of 57 Fontane finally took to what he would be remembered for, the novel. His fine historical romance Vor dem Sturm (1878) was followed by a series of novels of modern life, notably L'Adultera (1882), a book about adultery which was considered so risqué that it took Fontane two years to find a publisher.

In his novels Frau Jenny Treibel, Irrungen, Wirrungen, and Effi Briest (1894), he found his very own tone, yielding insights into the lives of the nobility as well as the "common man"; his achievement there was later described as poetic realism. In Der Stechlin (1899), his last finished novel, Fontane adapted the realistic methods and social criticism of contemporary French fiction to the conditions of Prussian life.