Steig was born in 1907 in Brooklyn, New York to Polish-Jewish immigrants from Austria, both socialists. His father was a house painter and his mother was a seamstress who encouraged his artistic leanings. As a child, he dabbled in painting and was an avid reader of literature. Among other works, he was said to have been especially fascinated by Pinocchio. In addition to artistic endeavors, he also did well at athletics, being a member of the collegiate All-American water polo team. He graduated from Townsend Harris High School at 15, but never completed college, though he attended three of them, spending two years at City College of New York, three years at the National Academy of Design, and a mere five days at the Yale School of Fine Arts before dropping out of each.

His brother Irwin was a journalist and painter, his brother Henry a writer, played the saxophone and painted and brother Arthur a writer and poet who, according to Steig, read The Nation in the cradle, was telepathic and "drew as well as Picasso or Matisse."

When his family became caught in financial problems during the Great Depression, he began drawing cartoons as a freelance artist, and sold his first cartoon to The New Yorker in 1930. Living in Gaylordsville, Connecticut, he soon became quite successful, and over the coming decades, he contributed more than 1600 cartoons to the magazine, including 117 of covers, leading Newsweek to dub him the "King of Cartoons." Steig was one of 250 sculptors who exhibited in the 3rd Sculpture International held at the Philadelphia Museum of Art in the summer of 1949. Steig was a patient of the psychiatrist Wilhelm Reich and illustrated Reich's polemic, Listen, Little Man.

In his 1960s, he decided to try his hand at another artistic endeavor, and in 1968, he wrote his first children's book. He excelled here as well, and his third book, Sylvester and the Magic Pebble (1970), won the prestigious Caldecott Medal. He went on to write more than 30 children's books, including the Doctor De Soto series, and continued to write into his 90s. Among his other well-known works, the picture book Shrek! (1990) formed the basis for the Dreamworks Animation film Shrek.

At the age of 95, Steig died from natural causes on October 3, 2003. Shrek 2 honored him by incorporating his name near the end of the credits. "In memory of William Steig 1907-2003."

Steig married four times and had three children. From 1936-1949, Steig was married to educator and artist Elizabeth Mead Steig (1909—1983), sister of anthropologist Margaret Mead, from whom he was later divorced. They were the parents of jazz flutist Jeremy Steig and a daughter, Lucinda. He married second wife Kari Homestead in 1950, and they had a daughter, Margit Laura. After their divorce, he was married to Stephanie Healey from 1964-1966. His final marriage, to Jeanne Doron, endured for the rest of his life.