McFarland was born in Dallas, Texas, on October 2, 1928 to Virginia Winifred (née Phillips) and Robert Emmett McFarland. He had three siblings: Thomas ("Tommy," who appeared in a few Our Gang episodes as "Dynamite"), Amanda, and Roderick ("Rod"). He attended Lancaster High School in Lancaster, TX.

In January 1931, in response to a trade magazine advertisement from Hal Roach Studios in Culver City, California requesting photographs of "cute kids," Spanky's Aunt Dottie (Virginia's sister) sent pictures from Sonny's portfolio. An invitation for a screen test arrived that spring, leading to his acting career. Portions of Spanky's screen test are included in a 1932 Our Gang entry, Spanky.

McFarland appeared as "Spanky" in 95 Our Gang films between 1932 and 1942. He also appeared in:

Upon being discovered at age three, he instantly became a key member of the Our Gang children's comedy movie series and one of Hollywood's stars. His earliest films show him as an outspoken toddler, grumpily going along with the rest of the gang. His scene-stealing abilities brought him more attention, and by 1935 he was the de facto leader of the gang, often paired with Carl "Alfalfa" Switzer, and always the enterprising "idea man." Switzer's character became as much of a scene-stealer as the young McFarland was, and the two boys' fathers fought constantly over screen time and star billing for their children.

Spanky McFarland's only starring feature-film role was in the 1936 Hal Roach film General Spanky, an unsuccessful attempt to move the Our Gang series into features. He also appeared as a Juvenile performer in many non-Roach feature films, including the Wheeler & Woolsey comedy Kentucky Kernels and two Fritz Lang features of the 1940s.

Following the 1938 Our Gang short Came the Brawn, McFarland "retired" from Our Gang, beginning a personal appearance tour. In mid-1938, Hal Roach sold the Our Gang unit to Metro-Goldwyn-Mayer, who began casting for a new "team leader" character in Spanky's vein and ended up rehiring McFarland himself. He remained in the MGM Our Gang productions until his final appearance in the series Unexpected Riches in 1942, at age fourteen.

In 1952, at age 24, McFarland joined the United States Air Force. Upon his return to civilian life, indelibly typecast in the public's mind as "Spanky" from Our Gang, he found himself unable to find work in show Business. He took less glamorous jobs, including work at a soft drink plant, a hamburger stand, and a popsicle factory. In the mid-1950s, when the Our Gang comedies were sweeping the nation on TV, McFarland hosted an afternoon children's show, The Spanky Show, on KOTV television in Tulsa, Oklahoma. The show included a studio audience and appearances by other celebrities such as James Arness, and it ran Little Rascals shorts. Station executives prevented McFarland from developing and expanding the show's format, and by 1960 McFarland had quit the show.

After that stint, he continued at odd jobs: selling wine, operating a restaurant and night club, and selling appliances, electronics, and furniture. He was selling for Philco-Ford Corporation, where he advanced to national sales training Director. During this time, McFarland continued to make personal appearances and cameo roles in films and television, including an appearance on The Mike Douglas Show with Darla Hood and william "Buckwheat" Thomas. As general manager, McFarland helped launch the classic movie channel The Nostalgia Channel in 1985. During the 1990s, after his self-described "semi-retirement," Spanky lent his name and Celebrity to help raise money for charities, primarily by participating in golf tournaments. Spanky also had his own namesake charity golf classic for 16 years, held in Marion, Indiana. He also traveled the country doing speaking engagements and lectures about his movie roles and his days on The Little Rascals. His final television performance was in 1993, playing himself in the cold open of the Cheers episode "Woody Gets An Election".

McFarland was in his bedroom in Keller, Texas getting dressed on June 30, 1993 when he suddenly collapsed. Paramedics tried to revive him for approximately 30 minutes before transporting him to Baylor University Medical Center in Grapevine, Texas. He was pronounced dead within 40 minutes of being admitted, at age 64. It was believed that McFarland had died of "a heart attack or an aneurysm"; his remains were cremated shortly thereafter.

In January 1994, McFarland posthumously joined fellow alumnus Jackie Cooper to become one of only two Our Gang members to receive a star on Hollywood's Walk of Fame.

McFarland's nickname "Spanky" is erroneously said to have arisen from warnings by his mother not to misbehave during one of the initial discussions with Hal Roach in his office. As the story goes, he had a habit of reaching out and grabbing things, and on doing so his mother Virginia would say, "Spanky, spanky, mustn't touch!" While this story has considerable folksy appeal, Spanky himself contradicted the tale, saying that the name was given by a Los Angeles newspaper reporter. The term "a spanky child" was late-19th- to early-20th-century slang for an intelligent, gifted toddler. Spanky was an Example of such a child in his earliest movies—a toddler who could act—so the name had meaning to the movie-going audience of that era that was lost for later generations. Use of the "Spanky" name by McFarland for subsequent Business or personal activities was expressly granted to McFarland in one of his studio contracts. In later years some family members would affectionately refer to him as "Spank."