Simonyi was born in Budapest, Hungary, the son of Károly Simonyi, a professor of electrical engineering at the Technical University of Budapest. While in secondary school he worked part-time as a night watchman at a computer laboratory in early 1960's, overseeing a large Soviet Ural II mainframe. He took an interest in computing and learned to program from one of the laboratory's Engineers. By the time he left school, he had learned to develop compilers and sold one of these to a government department. He presented a demonstration of his compiler to the members of a Danish computer trade delegation. In 2006 he said when he was young his dream was, "to get out of Hungary, go to the West and be free."

At the age of 17, Simonyi left Hungary on a short-term visa but did not return. He was hired by Denmark's A/S Regnecentralen in 1966 where he worked with Per Brinch Hansen and Peter Kraft on the RC 4000 minicomputer's Real-time Control System, and with Peter Naur on the GIER ALGOL compiler. He subsequently moved to the United States in 1968 to attend the University of California, Berkeley, where he earned his B.S. in Engineering Mathematics & Statistics in 1972 under Butler Lampson.

Simonyi was recruited to Xerox PARC by Butler Lampson during its most productive period, working alongside luminaries such as Alan Kay, Butler Lampson, and Robert Metcalfe on the development of the Xerox Alto, one of the first personal computers. He and Lampson developed Bravo, the first WYSIWYG document preparation program, which became operational in 1974. During this time he received his Ph.D. in computer science from Stanford University in 1977 with a dissertation on a software project management technique he called meta-programming. This approach sought to defeat Brooks' law by scaling programming through a formalization of communication among programmers. In the 1992 book Accidental Empires (ISBN 0-88730-855-4), Robert X. Cringely gave this description:

In 1981, at Metcalfe's suggestion, he visited bill Gates at Microsoft who suggested Simonyi start an applications group at Microsoft with the first application being a WYSIWYG word processor. At Microsoft, Simonyi built the organization and applications of what became its most profitable products, Word and Excel, as well as Excel's predecessor Multiplan. For the applications, Simonyi pursued a strategy called the "revenue bomb", whereby the product ran on a virtual machine that was ported to each platform. The resulting applications were highly portable, although Microsoft's focus and IBM's standardization on MS-DOS eventually made portability less important. In a 2002 news item, The Age noted that Simonyi introduced the concept of metaprogramming at Microsoft, turning it into what people sometimes referred to as a software factory, but the metaprogramming concept "did not work out in practice."

Simonyi remained at Microsoft during its rapid rise in the software industry, becoming one of its highest-ranking developers. He left Microsoft in 2002 to co-found, with Business partner Gregor Kiczales, a company called Intentional Software. This company markets the intentional programming concepts Simonyi developed at Microsoft Research. In this approach to software, a programmer first builds a language environment specific to a given Problem domain (such as life insurance). Domain experts, aided by the programmer, then describe the program's intended behavior in a What You See Is What You Get (WYSIWYG)-like manner. An automated system uses the program description and the language to generate the final program. Successive changes are only done at the WYSIWYG level.

In January 2004, Simonyi created the Charles Simonyi Fund for Arts and Sciences, through which Simonyi supports Seattle-area arts, science, and educational programs. As of May 2012, the Fund size was $75 million. Grant recipients have included the Seattle Symphony ($10 million), and the Seattle Public Library ($3 million), the Metropolitan Opera and the Juilliard School.

In August 2006, he passed a pre-qualification medical exam by the Russian Federal Space Agency, called the State Medical Commission (GMK). He started training at Star City in September 2006.

One of the schools Simonyi contacted was Cedar Point Elementary in Bristow, Virginia. A telebridge conversation was held on Tuesday, April 17, 2007. On board with him were Oleg Kotov and Fyodor Yurchikhin. On March 30, 2009 he held a phone conversation with students at the Girls' Middle School in Mountain View, CA, United States in which he said that one of the most surprising things about traveling to space was that upon returning to earth the air feels very thick, very heavy, like "breathing Pepto-Bismol." He also stated that talking with the students from the school "made his day."

Simonyi dated Martha Stewart for 15 years until 2008.

In October 2008, he booked for a second trip to the ISS through Space Adventures on board Soyuz TMA-14. On March 26, 2009 he returned to space aboard Soyuz TMA-14. He returned to Earth on board Soyuz TMA-13. Along with Soyuz Commander Yuri Lonchakov and Michael Fincke, Simonyi landed in Kazakhstan on April 8, 2009.

In February 2017, Simonyi gave the University of Washington Computer Science and Engineering (CSE) department $5 million towards the completion of a new building.