Sands was born in 1954 to Roman Catholic parents, John (died 2014) and Rosaleen (died 2018), who were both raised in Belfast. After marrying, they relocated to the new development of Abbots Cross, Newtownabbey, County Antrim, outside North Belfast. Sands was the eldest of four children. His younger sisters, Marcella and Bernadette, were born in 1955 and 1958, respectively. He also had a younger brother, John (born 1962). After experiencing harassment and intimidation from their neighbours, the family abandoned the development and moved in with friends for six months before being granted housing in the nearby Rathcoole development. Rathcoole was 30% Catholic and featured Catholic schools as well as a nominally Catholic but religiously-mixed youth football club (an unusual circumstance in Northern Ireland), known as Stella Maris, the same as the school Sands attended and where the training was held. Sands was a member of this club and played left-back. There was another youth club in nearby Greencastle called Star of the Sea and many boys went there when the Stella Maris club closed.

By 1966, sectarian violence in Rathcoole (along with the rest of Belfast) had considerably worsened, and the minority Catholic population there found itself under siege; Sands and his sisters were forced to run a gauntlet of bottle- and rock-throwing Protestant youths on the way to school every morning, and the formerly integrated Rathcoole youth football club banned Catholic members and renamed itself "The Kai", which stood for "Kill All Irish". Despite always having had Protestant friends, Sands suddenly found that none of them would even speak to him, and he quickly learned to associate only with Catholics. He left school in 1969 at age 15, and enrolled in Newtownabbey Technical College, beginning an apprenticeship as a coach builder at Alexander's Coach Works in 1970. He worked there for less than a year, enduring constant harassment from his Protestant co-workers, which according to several co-workers he ignored completely, as he wished to learn a meaningful trade. He was eventually confronted after leaving his shift in January 1971 by a number of his coworkers wearing the armbands of the local Ulster loyalist tartan gang. He was held at gunpoint and told that Alexander's was off-limits to "Fenian scum" and to never come back if he valued his life. This event, by Sands's admission, proved to be the point at which he decided that militancy was the only solution.

In 1972, Sands joined the Provisional IRA. He was arrested and charged in October 1972 with possession of four handguns found in the house where he was staying. Sands was convicted in April 1973, sentenced to five years imprisonment, and released in April 1976.

Sands married Geraldine Noade while in prison on robbery charges on 3 March 1973. His son, Gerard, was born 8 May 1973. Noade soon left to live in England with their son.

While in prison, Sands had several letters and articles published in the Republican paper An Phoblacht under the pseudonym "Marcella" (his sister's name). Other writings attributed to him are: Skylark Sing Your Lonely Song and One Day in My Life. Sands also wrote the lyrics of "Back Home in Derry" and "McIlhatton", which were both later recorded by Christy Moore, and "Sad Song For Susan", which was also later recorded. The melody of "Back Home in Derry" was borrowed from Gordon Lightfoot's 1976 song "The Wreck of the Edmund Fitzgerald". The song itself is about the penal transportation of Irishmen in the 19th century to Van Diemen's Land (modern day Tasmania, Australia).

In late 1980, Sands was chosen Officer Commanding of the Provisional IRA prisoners in the Maze Prison, succeeding Brendan Hughes who was participating in the first hunger strike. Republican prisoners organised a series of protests seeking to regain their previous Special Category Status, which would free them from some ordinary prison regulations. This began with the "blanket protest" in 1976, in which the prisoners refused to wear prison uniforms and wore blankets instead. In 1978, after a number of attacks on prisoners leaving their cells to "slop out" (i.e., empty their chamber pots), this escalated into the "dirty protest", wherein prisoners refused to wash and smeared the walls of their cells with excrement.

The Grateful Dead played the Nassau Coliseum the following night after Sands died and Guitarist Bob Weir dedicated the song "He's Gone" to Sands. The concert was later released as Dick's Picks Volume 13, part of the Grateful Dead's programme of live concert releases. French musician Léo Ferré dedicated performances of his song "Thank You Satan" to Sands in 1981 and 1984.

In Hartford, Connecticut, a memorial was dedicated to Bobby Sands and the other hunger strikers in 1997, the only one of its kind in the United States. Set up by the Irish Northern Aid Committee and local Irish-Americans, it stands in a traffic island known as Bobby Sands Circle at the bottom of Maple Avenue near Goodwin Park.

Bernadette Sands McKevitt is opposed to the Belfast Agreement, stating that "Bobby did not die for cross-border bodies with executive powers. He did not die for nationalists to be equal British citizens within the Northern Ireland state." The RIRA was responsible for the Omagh bombing on 15 August 1998, in which 29 people, including a mother pregnant with twins, were killed and more than 200 injured. This is the highest death toll from a single incident during the Troubles. Michael McKevitt was one of those named in a civil suit filed by victims and survivors.

In 2001, a memorial to Sands and the other hunger strikers was unveiled in Havana, Cuba.

Celtic F.C., a Scottish football club, received a €50,000 fine from UEFA over banners depicting Sands with a political message, which were displayed during a game on 26 November 2013 by Green Brigade fans.