He had many connections with the New England Puritan aristocracy of the early 19th century: He was the descendant of Pilgrim Fathers Robert Cushman, Thomas Cushman, and william Bassett. He was also the descendant of Sylvanus Lazell, a Minuteman and brigadier general in the War of 1812, and Edmund Lazell, a member of the Constitutional Convention in 1788.

Alger was born on January 13, 1832, in the New England coastal town of Chelsea, Massachusetts, the son of Horatio Alger Sr., a Unitarian minister, and Olive Augusta Fenno.

Horatio's siblings Olive Augusta and James were born in 1833 and 1836, respectively. An invalid sister, Annie, was born in 1840, and a brother, Francis, in 1842. Alger was a precocious boy afflicted with myopia and asthma, but Alger, Sr. decided early that his eldest son would one day enter the ministry, and, to that end, he tutored the boy in classical studies and allowed him to observe the responsibilities of ministering to parishioners.

Alger began attending Chelsea Grammar School in 1842, but by December 1844 his father's financial troubles had worsened considerably and, in search of a better salary, he moved the family to Marlborough, Massachusetts, an agricultural town 25 miles west of Boston, where he was installed as pastor of the Second Congregational Society in January 1845 with a salary sufficient to meet his needs. Horatio attended Gates Academy, a local preparatory school, and completed his studies at age 15. He published his earliest literary works in local newspapers.

According to Scharnhorst, Alger's father was "an impoverished man" who defaulted on his debts in 1844. His properties around Chelsea were seized and assigned to a local squire who held the mortgages. Scharnhorst speculates this episode in Alger's childhood accounts for the recurrent theme in his boys' books of heroes threatened with eviction or foreclosure and may account for Alger's "consistent espousal of environmental reform proposals". Scharnhorst writes, "Financially insecure throughout his life, the younger Alger may have been active in reform organizations such as those for temperance and children's aid as a means of resolving his status-anxiety and establish his genteel credentials for leadership."

In July 1848, Alger passed the Harvard entrance examinations and was admitted to the class of 1852. The 14-member, full-time Harvard faculty included Louis Agassiz and Asa Gray (sciences), Cornelius Conway Felton (classics), James Walker (religion and philosophy), and Henry Wadsworth Longfellow (belles-lettres). Edward Everett served as President. Alger's classmate Joseph Hodges Choate described Harvard at this time as "provincial and local because its scope and outlook hardly extended beyond the boundaries of New England; besides which it was very denominational, being held exclusively in the hands of Unitarians".

Alger thrived in the highly disciplined and regimented Harvard environment, winning scholastic and other prestigious awards. His genteel poverty and less-than-aristocratic heritage, however, barred him from membership in the Hasty Pudding Club and the Porcellian Club. In 1849 he became a professional Writer when he sold two essays and a poem to the Pictorial National Library, a Boston magazine. He began reading Walter Scott, James Fenimore Cooper, Herman Melville, and other modern Writers of fiction and cultivated a lifelong love for Longfellow, whose verse he sometimes employed as a model for his own. He was chosen Class Odist and graduated with Phi Beta Kappa Society honors in 1852, eighth in a class of 88.

Alger had no job prospects following graduation, and returned home. He continued to write, submitting his work to religious and literary magazines, with varying success. He briefly attended Harvard Divinity School in 1853, possibly to be reunited with a romantic interest, but left in November 1853 to take a job as an assistant Editor at the Boston Daily Advertiser. He loathed editing and quit in 1854 to teach at The Grange, a boys' boarding school in Rhode Island. When The Grange suspended operations in 1856, Alger found employment directing the 1856 summer session at Deerfield Academy.

His first book, Bertha's Christmas Vision: An Autumn Sheaf, a collection of short pieces, was published in 1856, and his second book, Nothing to Do: A Tilt at Our Best Society, a lengthy satirical poem, was published in 1857. He attended Harvard Divinity School from 1857 to 1860, and upon graduation, toured Europe. In the spring of 1861, he returned to a nation in the throes of the Civil War. Exempted from military Service for health reasons in July 1863, he wrote in support of the Union cause and associated with New England intellectuals. He was elected an officer in the New England Historic Genealogical Society in 1863.

On December 8, 1864, Alger was installed as a pastor with the First Unitarian Church and Society of Brewster, Massachusetts. Between ministerial duties, he organized games and amusements for boys in the parish, railed against smoking and drinking, and organized and served as President of the local chapter of the Cadets for Temperance. He submitted stories to Student and Schoolmate, a boys' monthly magazine of moral writings, edited by william Taylor Adams and published in Boston by Joseph H. Allen. In September 1865 his second boys' book, Paul Prescott's Charge, was published and received favorable reviews.

Early in 1866 a church committee of men was formed to investigate reports that Alger had sexually molested boys. Church officials reported to the hierarchy in Boston that Alger had been charged with "the abominable and revolting crime of gross familiarity with boys". Alger denied nothing, admitted he had been imprudent, considered his association with the church dissolved, and left town. Alger sent Unitarian officials in Boston a letter of remorse, and his father assured them his son would never seek another post in the church. The officials were satisfied and decided no further action would be taken.

In January 1867 the first of 12 installments of Ragged Dick appeared in Student and Schoolmate. The story, about a poor bootblack's rise to middle-class respectability, was a huge success. It was expanded and published as a novel in 1868. It proved to be his best-selling work. After Ragged Dick he wrote almost entirely for boys, and he signed a contract with publisher Loring for a Ragged Dick Series.

Alger secured his literary niche in 1868 with the publication of his fourth book, Ragged Dick, the story of a poor bootblack's rise to middle-class respectability. This novel was a huge success. His many books that followed were essentially variations on Ragged Dick and featured casts of stock characters: the valiant hard-working, honest youth, the noble mysterious stranger, the snobbish youth, and the evil, greedy squire.

Scharnhorst writes that Alger "exercised a certain discretion in discussing his probable homosexuality" and was known to have mentioned his sexuality only once after the Brewster incident. In 1870 the elder Henry James wrote that Alger "talks freely about his own late insanity—which he in fact appears to enjoy as a subject of conversation". Although Alger was willing to speak to James, his sexuality was a closely guarded secret. According to Scharnhorst, Alger made veiled references to homosexuality in his boys' books, and these references, Scharnhorst speculates, indicate Alger was "insecure with his sexual orientation". Alger wrote, for Example, that it was difficult to distinguish whether Tattered Tom was a boy or a girl and in other instances he introduces foppish, effeminate, lisping "stereotypical homosexuals" who are treated with scorn and pity by others. In Silas Snobden's Office Boy, a kidnapped boy disguised as a girl is threatened with being sent to the "insane asylum" if he should reveal his actual sex. Scharnhorst believes Alger's Desire to atone for his "secret sin" may have "spurred him to identify his own charitable acts of writing didactic books for boys with the acts of the charitable patrons in his books who wish to atone for a secret sin in their past by aiding the hero". Scharnhorst points out that the patron in Try and Trust, for Example, conceals a "sad secret" from which he is redeemed only after saving the hero's life.

In spite of the series' success, Alger was on financially uncertain ground and tutored the five sons of the international banker Joseph Seligman. He wrote serials for Young Israel and lived in the Seligman home until 1876. In 1875 Alger produced the serial Shifting for Himself and Sam's Chance, a sequel to The Young Outlaw. It was evident in these books that Alger had grown stale. Profits suffered, and he headed West for new material at Loring's behest, arriving in California in February 1877. He enjoyed a reunion with his brother James in San Francisco and returned to New York late in 1877 on a schooner that sailed around Cape Horn. He wrote a few lackluster books in the following years, rehashing his established themes, but this time the tales were played before a Western background rather than an urban one.

In New York, Alger continued to tutor the town's aristocratic youth and to rehabilitate boys from the streets. He was writing both urban and Western-themed tales. In 1879, for Example, he published The District Messenger Boy and The Young Miner. In 1877, Alger's fiction became a target of librarians concerned about sensational Juvenile fiction. An effort was made to remove his works from public collections, but the debate was only partially successful, defeated by the renewed interest in his work after his death.

Alger scholar Edwin P. Hoyt notes that Alger's morality "coarsened" around 1880, possibly influenced by the Western tales he was writing, because "the most dreadful things were now almost casually proposed and explored". Although he continued to write for boys, Alger explored subjects like violence and "openness in the relations between the sexes and generations"; Hoyt attributes this shift to the decline of Puritan ethics in America.

In 1881, Alger informally adopted Charlie Davis, a street boy, and another, John Downie, in 1883; they lived in Alger's apartment. In 1881, he wrote a biography of President James A. Garfield but filled the work with contrived conversations and boyish excitements rather than facts. The book sold well. Alger was commissioned to write a biography of Abraham Lincoln, but again it was Alger the boys' Novelist opting for thrills rather than facts.

In 1882, Alger's father died. Alger continued to produce stories of honest boys outwitting evil, greedy squires and malicious youths. His work appeared in hardcover and paperback, and decades-old poems were published in anthologies. He led a busy life with street boys, Harvard classmates, and the social elite. In Massachusetts, he was regarded with the same reverence as Harriet Beecher Stowe. He tutored with never a whisper of scandal.

He attended the theater and Harvard reunions, read literary magazines, and wrote a poem at Longfellow's death in 1892. His last novel for adults, The Disagreeable Woman, was published under the pseudonym Julian Starr. He took pleasure in the successes of the boys he had informally adopted over the years, retained his interest in reform, accepted speaking engagements, and read portions of Ragged Dick to boys' assemblies.

He suffered from bronchitis and asthma for two years. He died on July 18, 1899, at the home of his sister in Natick, Massachusetts. His death was barely noticed. He is buried in the family lot at Glenwood Cemetery, South Natick, Massachusetts.

Before his death, Alger asked Edward Stratemeyer to complete his unfinished works. In 1901, Young Captain Jack was completed by Stratemeyer and promoted as Alger's last work. Alger once estimated that he earned only $100,000 between 1866 and 1896; at his death he had little money, leaving only small sums to family and friends. His literary work was bequeathed to his niece, to two boys he had casually adopted, and to his sister Olive Augusta, who destroyed his manuscripts and his letters, according to his wishes.

Alger's works received favorable comments and experienced a resurgence following his death. Until the advent of the Jazz Age in the 1920s, he sold about seventeen to twenty million volumes. In 1926, however, reader interest plummeted, and his major publisher ceased printing the books altogether. Surveys in 1932 and 1947 revealed very few children had read or even heard of Alger. The first Alger biography was a heavily fictionalized account published in 1928 by Herbert R. Mayes, who later admitted the work was a fraud.

Since 1947, the Horatio Alger Association of Distinguished Americans has bestowed an annual award on "outstanding individuals in our society who have succeeded in the face of adversity" and scholarships "to encourage young people to pursue their dreams with determination and perseverance".

A 1982 musical, Shine!, was based on Alger's work, particularly Ragged Dick and Silas Snobden's Office Boy.

Alan Trachtenberg, in his introduction to the Signet Classic edition of Ragged Dick (1990), points out that Alger had tremendous sympathy for boys and discovered a calling for himself in the composition of boys' books. "He learned to consult the boy in himself", Trachtenberg writes, "to transmute and recast himself—his genteel culture, his liberal patrician sympathy for underdogs, his shaky economic status as an author, and not least, his dangerous erotic attraction to boys—into his Juvenile fiction". He observes that it is impossible to know whether Alger lived the life of a secret homosexual, "[b]ut there are hints that the male companionship he describes as a refuge from the streets—the cozy domestic arrangements between Dick and Fosdick, for example—may also be an erotic relationship". Trachtenberg observes that nothing prurient occurs in Ragged Dick but believes the few instances in Alger's work of two boys touching or a man and a boy touching "might arouse erotic wishes in readers prepared to entertain such fantasies". Such images, Trachtenberg believes, may imply "a positive view of homoeroticism as an alternative way of life, of living by sympathy rather than aggression". Trachtenberg concludes, "in Ragged Dick we see Alger plotting domestic romance, complete with a surrogate marriage of two homeless boys, as the setting for his formulaic metamorphosis of an outcast street boy into a self-respecting citizen".

His popularity—and income—dwindled in the 1890s. In 1896, he had what he called a "nervous breakdown"; he relocated permanently to his sister's home in South Natick, Massachusetts.

In 2015, many of Alger’s books were published as illustrated paperbacks and ebooks under the title “Stories of Success” by Horatio Alger. In addition, Alger’s books were offered as dramatic audiobooks by the same publisher.