Dershowitz was born in Williamsburg, Brooklyn, on September 1, 1938, the son of Claire (née Ringel) and Harry Dershowitz, an Orthodox Jewish couple. He was raised in Borough Park. His father was a founder and President of the Young Israel Synagogue in the 1960s, served on the board of Directors of the Etz Chaim School in Borough Park, and in retirement was co-owner of the Manhattan-based Merit Sales Company. According to Dershowitz, Harry had a strong sense of justice and talked about how it was "the Jew's job to defend the underdog".

Dershowitz's first job was at a deli factory on Manhattan's Lower East Side in 1952, at age 14. He recalls tying the strings that separated the hot dogs and once getting locked in the freezer.

Dershowitz attended Yeshiva University High School, an independent boys' prep school owned by Yeshiva University, in Manhattan, New York City, where he played on the basketball team. He was a rebellious student, often criticized by his teachers. The school's career placement center told him he had talent and was capable of becoming an advertising executive, funeral Director, or salesman. He later said his teachers told him to do something that "requires a big mouth and no brain ... so I became a lawyer". After graduating from high school, he attended Brooklyn College and received his A.B. in 1959, majoring in Political Science. Next, he attended Yale Law School, where he was editor-in-chief of the Yale Law Journal, and graduated first in his class with a Bachelor of Laws (LL.B.) in 1962. He was a member of a Conservative minyan at Harvard Hillel, but is now a secular Jew.

After being admitted to the bar, Dershowitz served as a clerk for David L. Bazelon, the chief judge of the U.S. Court of Appeals for the District of Columbia Circuit. He said that, "Bazelon was my best and worst boss at once ... He worked me to the bone; he didn't hesitate to call at 2 a.m. He taught me everything - how to be a civil libertarian, a Jewish Activist, a mensch. He was halfway between a slave master and a father figure." During the 1963-1964 term, he served as law clerk for the Supreme Court Associate Justice Arthur Goldberg. He told Tom Van Riper of Forbes that getting a Supreme Court clerkship was probably his second big break; his first was when, at age 14 or 15, a camp counselor told him he was smart but that his mind operated a little differently. He joined the faculty of Harvard Law School as an assistant professor in 1964, and was made a full professor in 1967 at the age of 28, at that time the youngest full professor of law in the school's history. He was appointed Felix Frankfurter professor of law in 1993.

In 1976, Dershowitz handled the successful appeal of Harry Reems, who had been convicted of distribution of obscenity resulting from his acting in the pornographic movie Deep Throat. In public debates, Dershowitz commonly argues against censorship of pornography on First Amendment grounds, and maintains that consumption of pornography is not harmful.

Dershowitz has been described by Newsweek as America's "most peripatetic civil liberties Lawyer and one of its most distinguished defenders of individual rights". He was named a Guggenheim Fellow in 1979, and in 1983 received the william O. Douglas First Amendment Award from the Anti-Defamation League for his work on civil rights. In November 2007, he was awarded the Soviet Jewry Freedom Award by the Russian Jewish Community Foundation. In December 2011, he was awarded the Menachem Begin Award of Honor by the Menachem Begin Heritage Center at an event co-sponsored by NGO Monitor. He has been awarded honorary doctorates in law from Yeshiva University, the Hebrew Union College, Monmouth University, University of Haifa, Syracuse University, Fitchburg State College, Bar-Ilan University, and Brooklyn College. In addition, he is a member of the International Advisory Board of NGO Monitor.

Dershowitz represented Claus von Bülow, a British socialite, at his appeal for the attempted murder of his wife, Sunny von Bülow, who went into a coma in Newport, Rhode Island, in 1980 (and later died in 2008). He had the conviction overturned, and von Bülow was acquitted in a retrial. Dershowitz told the story of the case in his book, Reversal of Fortune: Inside the von Bülow case (1985), which was turned into a movie in 1990. Dershowitz was played by actor Ron Silver, and Dershowitz himself had a cameo role as a judge.

A political liberal, he is the author of a number of books about politics and law, including Reversal of Fortune: Inside the von Bülow Case (1985), the basis of the 1990 film; Chutzpah (1991); Reasonable Doubts: The Criminal Justice System and the O.J. Simpson Case (1996); The Case for Israel (2003); Rights From Wrongs: A Secular Theory of the Origins of Rights (2004); and The Case for Peace (2005).

In 1989, Dershowitz filed a defamation suit against Cardinal Józef Glemp, then Archbishop of Warsaw, on behalf of Rabbi Avi Weiss. Glemp had accused Weiss and six other New York Jews of attacking nuns at a much-disputed convent on the site of the Auschwitz concentration camp. Glemp's statement about Weiss, made in July 1989, was coupled with suggestions that Jews control the world's news media. Dershowitz's account of the lawsuit appears in his book Chutzpah (1991).

Dershowitz sued The Boston Globe in 1990 over a remark reporter Mike Barnicle attributed to him, in which Dershowitz allegedly said he preferred Asian women because they are deferential to men. Dershowitz reportedly received a $75,000 out-of-court settlement, and the newspaper's ombudsman questioned Barnicle's credibility, according to The Boston Phoenix.

In the O. J. Simpson murder case, Dershowitz acted as an appellate adviser to O. J. Simpson's defense team during the trial, and later wrote a book about it, Reasonable Doubts: The Criminal Justice System and the O. J. Simpson Case (1996). He wrote: "the Simpson case will not be remembered in the next century. It will not rank as one of the trials of the century. It will not rank with the Nuremberg trials, the Rosenberg trial, Sacco and Vanzetti. It is on par with Leopold and Loeb and the Lindbergh case, all involving celebrities. It is also not one of the most important cases of my own career. I would rank it somewhere in the middle in terms of interest and importance." The case has been described as the most publicized Criminal trial in American history.

Following the September 11, 2001 attacks, Dershowitz published an article in The San Francisco Chronicle entitled "Want to Torture? Get a Warrant", in which he advocated the issuance of warrants permitting the torture of terrorism suspects, if there were an "absolute need to obtain immediate information in order to save lives coupled with probable cause that the suspect had such information and is unwilling to reveal it". He argued that authorities should be permitted to use non-lethal torture in a "ticking time bomb scenario", and that it would be less destructive to the rule of law to regulate the process than to leave it to the discretion of individual law-enforcement agents. He favors preventing the government from prosecuting the subject of torture based on information revealed during such an interrogation. The "ticking time bomb scenario" is the subject of a play, The Dershowitz Protocol, by Canadian author Robert Fothergill, in which the American government has established a protocol of "intensified interrogation" for terrorist suspects.

In March 2002, Dershowitz published an article in The Jerusalem Post entitled "New Response to Palestinian Terrorism". In it, he wrote that Israel should announce a unilateral cessation in retaliation, at the end of which it would "announce precisely what it will do in response to the next act of terrorism. For Example, it could announce the first act of terrorism following the moratorium will result in the destruction of a small village which has been used as a base for terrorist operations. The residents would be given 24 hours to leave, and then, troops will come in and bulldoze all of the buildings." The list of targets would be made public in advance. The proposal attracted criticism from within Harvard University and beyond. James Bamford argued in The Washington Post that it would violate international law. Norman Finkelstein wrote that "it is hard to make out any difference between the policy Dershowitz advocates and the Nazi destruction of Lidice, for which he expresses abhorrence - except that Jews, not Germans, would be implementing it".

Shortly after the publication of Dershowitz's The Case for Israel (2003), Norman Finkelstein of DePaul University said the book contained plagiarism. Dershowitz denied the allegation. Harvard's President, Derek Bok, investigated the allegation and determined that no plagiarism had occurred. In an opinion piece supportive of Finkelstein written for Counterpunch, Los Angeles attorney Frank Menetrez asserted that "neither Dershowitz nor Harvard ... has identified the specific issues or arguments that Harvard allegedly investigated and rejected. In particular, neither of them has ever said whether Harvard investigated the identical errors issue".

William F. Schulz, Executive Director of the U.S. section of Amnesty International, found Dershowitz's ticking-bomb scenario unrealistic because, he argued, it would require that "the authorities know that a bomb has been planted somewhere; know it is about to go off; know that the suspect in their custody has the information they need to stop it; know that the suspect will yield that information accurately in a matter of minutes if subjected to torture; and know that there is no other way to obtain it". James Bamford of The Washington Post described one of the practices mentioned by Dershowitz - the "sterilized needle being shoved under the fingernails" - as "chillingly Nazi-like". In his Rights from Wrongs: A Secular Theory of the Origins of Rights (2004), he writes that, in order to avoid human beings treating each other the way we treat animals, we have made what he calls the "somewhat arbitrary decision" to single out our own species for different and better treatment. "Does this subject us to the charge of speciesism? Of course it does, and we cannot justify it, except by the fact that in the world in which we live, humans make the rules. That reality imposes on us a special responsibility to be fair and compassionate to those on whom we impose our rules. Hence the argument for animal rights."

In October 2006, Dershowitz wrote to DePaul University faculty members to lobby against Finkelstein's application for tenure. The university's Liberal Arts and Sciences faculty voted to send a letter of complaint to Harvard University. In June 2007, DePaul University denied Finkelstein tenure.

During the 2008 Democratic Party primaries, Dershowitz endorsed Hillary Clinton, calling her "a progressive on social issues, a realist on foreign policy, a pragmatist on the economy". In 2012, he strongly supported Barack Obama's re-election, writing, "President Obama has earned my vote on the basis of his excellent judicial appointments, his consensus-building foreign policy, and the improvements he has brought about in the disastrous economy he inherited." In 2018, after a photo with then-Senator Obama and Nation of Islam leader Louis Farrakhan at a 2005 meeting of the Congressional Black Caucus emerged, Dershowitz insisted that he never would have campaigned for Obama had the photo been publicized soon after it was taken.

"The Case for Israel: Democracy's Outpost" is a 2009 documentary directed by Michael Youhay in which Alan Dershowitz gives a vehement defense of Israel's basic right to exist, along with his other perspectives on the conflict from his 2003 book of the same name.

On February 29, 2012, Dershowitz filed an amicus brief in support of delisting the People's Mujahedin of Iran (MEK) from the State Department list of foreign terrorist organization.

Dershowitz retired from teaching at Harvard Law in December 2013.

On December 30, 2014, a Florida court filing alleged Alan Dershowitz was one of several prominent figures to have participated in sexual activities with a minor; That filing alleged that Dershowitz had sex on several occasions with an underage girl later identified as Virginia Roberts, employed by financier and convicted sex offender, Jeffrey Epstein. Dershowitz, a personal friend of Epstein, had represented Epstein in his 2008 Criminal conviction.

In April 2015, U.S. District Court Judge Kenneth A. Marra, presiding over a 2008 lawsuit seeking to re-open the Epstein case, ordered "sensational" allegations against Prince Andrew and Dershowitz stricken from the record as having no bearing on the lawsuit's goal of re-opening the case.

Dershowitz sought disbarment of the lawyers filing the suit while lawyers representing the alleged victim countered by filing suit against Dershowitz for defamation. That suit settled in 2016. Dershowitz alleges unfairness in the United States legal system, saying lawyers can make false accusations against him or against other parties in court documents while the accused cannot sue for defamation due to litigation privilege.

Despite his admitted liberal tendencies, Dershowitz has been a defender for President Trump in some cases. In January 2018 he said that Democrats attacking the president's 'mental fitness' was a "very dangerous" line of attack. He has been Adam Ant that there is "no case" for obstruction of justice against President Trump regarding the firing of former FBI Director James Comey and has said that "collusion" as it is defined by Democrats and the media in reference to Russian meddling in the 2016 election is not a crime.

Dershowitz has strongly argued against the criminalization of political differences and the legal investigations against Donald Trump, while also stating that Trump’s alleged disclosure of Classified information to Russia is “the most serious charge ever made against a sitting President.” He also campaigned against the election of Donald Trump during the United States presidential election of 2016 and has been critical of many of his actions, including his travel ban, his rescission of protections for “Dreamers” and Donald Trump’s failure to single out white nationalists for their provocations during protests in Charlottesville.