Koch was born in Dresden, Germany, the daughter of a factory foreman. She was known as a polite and happy child in her elementary school. At the age of 15, she entered an accountancy school. Later, she went to work as a bookkeeping clerk. At the time the economy of Germany had not yet recovered from Germany's defeat in World War I. In 1932, she became a member of the rising Nazi Party. Through some friends in the SA and SS, she met Karl-Otto Koch in 1934, marrying him two years later.

In 1936, she began working as a guard and secretary at the Sachsenhausen concentration camp near Berlin, which her fiancé commanded, and was married the same year. In 1937 she came to Buchenwald when her husband was made Commandant. While at Buchenwald, Koch allegedly engaged in a gruesome experiment, where it was claimed that she ordered selected tattooed prisoners to be murdered and skinned to retrieve the tattooed parts of their bodies. It was allegedly done to help a prison Doctor, Erich Wagner (de), in his dissertation on tattooing and criminality.

In 1940, she built an indoor Sports arena, which cost over 250,000 reichsmarks (approximately $62,500), most of which had been seized from the inmates. In 1941 Karl Otto Koch was transferred to Lublin, where he helped establish the Majdanek concentration and extermination camp. Ilse Koch remained at Buchenwald until 24 August 1943, when she and her husband were arrested on the orders of Josias von Waldeck-Pyrmont, SS and Police Leader for Weimar, who had supervisory authority over Buchenwald. The charges against the Kochs comprised private enrichment, embezzlement, and the murder of prisoners to prevent them from giving testimony.

Ilse Koch was imprisoned until 1944 when she was acquitted for lack of evidence. Her husband was found guilty and sentenced to death by an SS court in Munich, and was executed by firing squad on 5 April 1945 in the court of the camp he once commanded. She went to live with her surviving family in the town of Ludwigsburg, where she was arrested by U.S. authorities on 30 June 1945.

Koch announced in the courtroom that she was eight months pregnant but on 19 August 1947, she was sentenced to life imprisonment for "violation of the laws and customs of war".

Gen. Lucius D. Clay was the interim military governor of the American Zone in Germany, and he reduced the judgment to four years imprisonment on 8 June 1948, after she had served two years of her sentence, on the grounds that "there was no convincing evidence that she had selected inmates for extermination in order to secure tattooed skins, or that she possessed any articles made of human skin". News of the reduced sentence did not become public until 16 September 1948, and Clay stood firm despite the ensuing uproar. Jean Edward Smith reported in his biography Lucius D. Clay: An American Life that the general maintained that the leather lamp shades were really made out of goat skin. The book quotes a statement made by Clay years later:

Under the pressure of public opinion Koch was re-arrested in 1949 and tried before a West German court. The hearing opened on 27 November 1950 before the District Court at Augsburg and lasted seven weeks, during which 250 witnesses were heard, including 50 for the defence. Koch collapsed and had to be carried from the court in late December 1950, and again on 11 January 1951. At least four separate witnesses for the prosecution testified that they had seen Koch choose tattooed prisoners, who were then killed, or had seen or been involved in the process of making human-skin lampshades from tattooed skin. However, this charge was dropped by the prosecution when they could not prove lampshades or any other items were actually made from human skin.

On 15 January 1951, the Court pronounced its verdict, in a 111-page-long decision, for which Koch was not present in court. It was concluded that the previous trials in 1944 and 1947 were not a bar to proceedings under the principle of ne bis in idem, as at the 1944 trial Koch had only been charged with receiving, while in 1947 she had been accused of crimes against foreigners after 1 September 1939, and not with crimes against humanity of which Germans and Austrians had been defendants both before and after that date. She was convicted of charges of incitement to murder, incitement to attempted murder and incitement to the crime of committing grievous bodily harm, and on 15 January 1951 was sentenced to life imprisonment and permanent forfeiture of civil rights.

Koch appealed to have the judgment quashed, but the appeal was dismissed on 22 April 1952 by the Federal Court of Justice. She later made several petitions for a pardon, all of which were rejected by the Bavarian Ministry of Justice. Koch protested her life sentence, to no avail, to the International Human Rights Commission.

Koch hanged herself at Aichach women's prison on 1 September 1967 at age 60. She suffered from delusions and had become convinced that concentration camp survivors would abuse her in her cell.

In 1971, her son Uwe sought posthumous rehabilitation for his mother.