Born Angela Olive Stalker in Eastbourne, in 1940, to Sophia Olive (née Farthing; 1905–1969) and Hugh Alexander Stalker (1896–1988), Carter was evacuated as a child to live in Yorkshire with her maternal grandmother. As a teenager she battled against anorexia. After attending Streatham and Clapham High School, in south London, she began work as a Journalist on The Croydon Advertiser, following in the footsteps of her father. Carter attended the University of Bristol where she studied English literature.

She married twice, first in 1960 to Paul Carter, divorcing in 1972. In 1969, she used the proceeds of her Somerset Maugham Award to leave her husband and relocate for two years to Tokyo, where she claims in Nothing Sacred (1982) that she "learnt what it is to be a woman and became radicalised". She wrote about her experiences there in articles for New Society and a collection of short stories, Fireworks: Nine Profane Pieces (1974), and evidence of her experiences in Japan can also be seen in The Infernal Desire Machines of Doctor Hoffman (1972). She then explored the United States, Asia and Europe, helped by her fluency in French and German. She spent much of the late 1970s and 1980s as a Writer in residence at universities, including the University of Sheffield, Brown University, the University of Adelaide, and the University of East Anglia. In 1977, Carter married Mark Pearce, with whom she had one son. In 1979, both The Bloody Chamber, and her influential essay, The Sadeian Woman and the Ideology of Pornography, appeared. In the essay, according to the Writer Marina Warner, Carter "deconstructs the arguments that underlie The Bloody Chamber. It's about Desire and its destruction, the self-immolation of women, how women collude and connive with their condition of enslavement. She was much more independent-minded than the traditional feminist of her time."

As well as being a prolific Writer of fiction, Carter contributed many articles to The Guardian, The Independent and New Statesman, collected in Shaking a Leg. She adapted a number of her short stories for radio and wrote two original radio dramas on Richard Dadd and Ronald Firbank. Two of her fictions have been adapted for film: The Company of Wolves (1984) and The Magic Toyshop (1987). She was actively involved in both adaptations; her screenplays are published in the collected dramatic writings, The Curious Room, together with her radio scripts, a libretto for an opera of Virginia Woolf's Orlando, an unproduced screenplay entitled The Christchurch Murders (based on the same true story as Peter Jackson's Heavenly Creatures) and other works. These neglected works, as well as her controversial television documentary, The Holy Family Album, are discussed in Charlotte Crofts' book, Anagrams of Desire (2003). Her novel Nights at the Circus won the 1984 James Tait Black Memorial Prize for literature. Her last novel, Wise Children, is a surreal wild ride through British theatre and music hall traditions.

Angela Carter died aged 51 in 1992 at her home in London after developing lung cancer.