Bunker was born "on New Year's Eve, 1933" into a troubled family in Los Angeles. His mother, Sarah (née Johnston), was a chorus girl from Vancouver, and his father, Edward N. Bunker, a stage hand. His first clear memories were of his alcoholic parents screaming at each other, and police arriving to "keep the peace." When they divorced, Bunker ended up in a foster home at the age of five, but he felt profoundly unhappy and ran away. As a result, Bunker went through a progression of increasingly draconian institutions. Consistently rebellious and defiant, young Bunker was subjected to a harsh regime of discipline. He attended a military school for a few months, where he began stealing and eventually ran away again, ending up in a hobo camp 400 miles away. While Bunker was eventually apprehended by the authorities, this established a pattern he would follow throughout his formative years.

In 1951, the seventeen-year-old Bunker had the dubious honor of being the youngest ever inmate in San Quentin State Prison. While in solitary confinement he was situated close to the death row cell of Caryl Chessman, who was writing on a typewriter. He had already met Chessman earlier, and Chessman sent him an issue of Argosy magazine, in which the first chapter of his book Cell 2455, Death Row was published. Bunker, inspired by his encounter with Chessman, drew upon his literary influences and decided to try writing his own stories.

Bunker was paroled in 1956. Now 22, he was unable to adjust to living in normal society. As an ex-convict, he felt ostracized by "normal" people, although he managed to stay out of trouble for several years. Although Fazenda attempted to help him, after she was diagnosed with a nervous breakdown her husband pronounced many of her former friends – including Bunker – personae non-gratae in the Wallis household. Bunker held down various jobs for a while, including that of a used car salesman, but eventually returned to crime. He orchestrated robberies (without personally taking part in them), forged checks, and engaged in other Criminal activities.

Although Bunker was eventually released, he continued a life of crime. In the early 1970s, Bunker ran a profitable drug racket in San Francisco; he was arrested again when the police, who had put a tracking device on his car, followed him to a bank heist. (The police expected Bunker to lead them to a drug deal and were rather shocked by their stroke of luck.) Bunker expected a 20-year sentence, but thanks to the solicitations of influential friends and a lenient judge, he got only five years.

In prison, Bunker continued to write. He finally had his first novel No Beast So Fierce published in 1973, to which Dustin Hoffman purchased the film rights. Bunker was paroled in 1975, having spent eighteen years of his life in various institutions. While he was still tempted by crime, he now found himself earning a living from writing and acting. He felt that his Criminal career had been forced by circumstances; now that those circumstances had changed, he could stop being a Criminal.

He started on a Criminal career at a very early age, and continued on this path throughout the years, returning to prison again and again. He was convicted of bank robbery, drug dealing, extortion, armed robbery, and forgery. A repeating pattern of convictions, paroles, releases and escapes, further crimes and new convictions continued until he was released yet again from prison in 1975, at which point he finally left his Criminal days permanently behind. Bunker stayed out of jail thereafter, and instead focused on his career as a Writer and actor.

He published his second novel, Animal Factory to favorable reviews in 1977. A 1978 movie called Straight Time based on No Beast So Fierce was not a commercial success, but Bunker participated in the drafting of the screenplay, and also got his first acting part in the movie. Like most of Bunker's parts, it was a fleeting cameo, but Bunker eventually appeared in numerous movies, such as The Running Man, Tango & Cash and Reservoir Dogs (as Mr. Blue), as well as the film version of Animal Factory, for which he also wrote the screenplay.

Bunker was close friends with Mexican Mafia Leader Joe "Pegleg" Morgan, as well as actor Danny Trejo, who is the godfather of his son, both of whom he first met in Folsom State Prison. Michael Mann based the character of "Nate," played by Jon Voight, on Bunker for his 1995 film, Heat. The film also stars Trejo as a member of Robert De Niro's ("Neil McCauley" – another real life criminal) crew.

Bunker's autobiography, Mr. Blue: Memoirs of a Renegade, was published in 1999.

In 1977, Bunker married a young real estate agent, Jennifer. In 1993, their first son, Brendan, was born. The marriage ended in divorce. A diabetic, Bunker died on July 19, 2005 in Burbank, California, following surgery to improve the circulation in his legs. He was 71.

Bunker had better luck robbing banks in real life than he did in the movies. In Reservoir Dogs he played one of two Criminals killed during a heist. In The Long Riders, he had an even briefer role as Bill Chadwell – one of two members of the James-Younger Gang killed during a bank robbery in Northfield, Minnesota.