His nickname (acquired during a card game in Chicago in 1915) was originally spelled Chicko. A typesetter accidentally dropped the "k" in his name and it became Chico. It was still pronounced "Chick-oh" although those who were unaware of its origin tended to pronounce it "Cheek-oh". Numerous radio recordings from the 1940s exist where announcers and fellow actors mispronounce the nickname, but Chico apparently felt it was unnecessary to correct them. As late as the 1950s, Groucho was happy to use the wrong pronunciation for comedic effect. A guest on You Bet Your Life told the quizmaster she grew up around Chico (California) and Groucho responded, "I grew up around Chico myself. You aren't Gummo, are you?"

Chico was married twice. His first marriage was to Betty Karp in 1917. Their union produced one daughter named Maxine (1918–2009). His first marriage was plagued by his infidelity, ending in divorce in 1940; he was very close to his daughter Maxine and gave her acting lessons.

Chico became the unofficial manager of the Marx Brothers after their mother, Minnie, died in 1929. As manager, he cut a deal to get the brothers a percentage of a film's gross receipts—the first of its kind in Hollywood. Furthermore, it was Chico's connection with Irving Thalberg of Metro-Goldwyn-Mayer that led to Thalberg's signing the Brothers when they were in a career slump after Duck Soup (1933), the last of their films for Paramount.

As well as being a compulsive womanizer, Chico had a lifelong gambling habit. His favorite gambling pursuits were card games, horse racing, dog racing, and various Sports betting. His addiction cost him millions of dollars by his own account. When an interviewer in the late 1930s asked him how much money he had lost from gambling, he answered, "Find out how much money Harpo's got. That's how much I've lost." Gummo Marx, in an interview years after Chico's death, said: "Chico's favorite people were actors who gambled, producers who gambled, and women who screwed." Referring to Chico's love life, George Jessel quipped, "Chico didn't button his fly until he was seventy."

Groucho Marx once said that Chico never practiced the pieces he played. Instead, before performances he soaked his fingers in hot water. He was known for 'shooting' the keys of the piano. He played passages with his thumb up and index finger straight, like a gun, as part of the act. Other examples of his keyboard flamboyance are found in A Night at the Opera (1935), where he played the piano for a group of delighted children, and A Night in Casablanca (1946), where he played a rendition of "The Beer Barrel Polka".

Chico's lifelong gambling addiction compelled him to continue in show Business long after his brothers had retired in comfort from their Hollywood income, and in the early 1940s he found himself playing in the same small, cheap halls in which he had begun his career 30 years earlier. The Marx Brothers' penultimate film, A Night in Casablanca (1946), was made for Chico's benefit since he had filed for bankruptcy a few years prior. Because of his out-of-control gambling, the brothers finally took the money as he earned it and put him on an allowance, on which he stayed until his death.

Chico's second marriage was to Mary De Vithas. They married in 1958, three years before his death.

Chico had a reputation as a world-class pinochle player, a game he and Harpo learned from their Father. Groucho said Chico would throw away good cards (with the knowledge of spectators) to make the play "more interesting". Chico's last public appearance was in 1960, playing cards on the television show Championship Bridge. He and his partner lost the game.

Chico died of arteriosclerosis at age 74 on October 11, 1961, at his Hollywood home. He was the eldest brother and the first to die.

During Groucho's live performance at Carnegie Hall in 1972, he states that his brother got the name Chico because he was a "chicken-chaser" (early 20th century slang for womanizer). "In England now, they call them birds."