He became an agricultural labourer while still a child; however, he attended school in Glinton church until he was 12. In his early adult years, Clare became a potboy in the Blue Bell public house and fell in love with Mary Joyce; but her father, a prosperous farmer, forbade her to meet him. Subsequently, he was a gardener at Burghley House. He enlisted in the militia, tried camp life with Gypsies, and worked in Pickworth as a lime burner in 1817. In the following year he was obliged to accept parish relief. Malnutrition stemming from childhood may have been the main factor behind his five-foot stature and have contributed to his poor physical health in later life.

He had married Martha ("Patty") Turner in 1820. An annuity of 15 guineas from the Marquess of Exeter, in whose Service he had been, was supplemented by subscription, so that Clare became possessed of £45 annually, a sum far beyond what he had ever earned. Soon, however, his income became insufficient, and in 1823 he was nearly penniless. The Shepherd's Calendar (1827) met with little success, which was not increased by his hawking it himself. As he worked again in the fields his health temporarily improved; but he soon became seriously ill. Earl Fitzwilliam presented him with a new cottage and a piece of ground, but Clare could not settle in his new home.

The only Clare essay published (anonymously), in his lifetime was "Popularity of Authorship", a document of his predicament in 1824. Other essays written by Clare appeared in Essays on Landscape, Essays on Criticism and Fashion, Recollections on a Journey from Essex, Excursions with an Angler, For Essay on Modesty and Mock Morals, For Essay on Industry:"Keats", "Byron", "The Dream", "House or Window Flies" and "Dewdrops".

Clare was constantly torn between the two worlds of literary London and his often illiterate neighbours; between the need to write poetry and the need for money to feed and clothe his children. His health began to suffer, and he had bouts of severe depression, which became worse after his sixth child was born in 1830 and as his poetry sold less well. In 1832, his friends and his London patrons clubbed together to move the family to a larger cottage with a smallholding in the village of Northborough, not far from Helpston. However, he felt only more alienated.

His last work, the Rural Muse (1835), was noticed favourably by Christopher North and other reviewers, but this was not enough to support his wife and seven children. Clare's mental health began to worsen. As his alcohol consumption steadily increased along with his dissatisfaction with his own identity, Clare's behaviour became more erratic. A notable instance of this behaviour was demonstrated in his interruption of a performance of The Merchant of Venice, in which Clare verbally assaulted Shylock. He was becoming a burden to Patty and his family, and in July 1837, on the recommendation of his publishing friend, John Taylor, Clare went of his own volition (accompanied by a friend of Taylor's) to Dr Matthew Allen's private asylum High Beach near Loughton, in Epping Forest. Taylor had assured Clare that he would receive the best medical care.

During his first few asylum years in High Beach, Essex (1837–41), Clare re-wrote famous poems and sonnets by Lord Byron. His own version of Child Harold became a lament for past lost love, and Don Juan, A Poem became an acerbic, misogynistic, sexualised rant redolent of an ageing Regency dandy. Clare also took credit for Shakespeare's plays, claiming to be the Renaissance genius himself. "I'm John Clare now," the poet claimed to a newspaper Editor, "I was Byron and Shakespeare formerly."

Clare was reported as being "full of many strange delusions". He believed himself to be a prize fighter and that he had two wives, Patty and Mary. He started to claim he was Lord Byron. Allen wrote about Clare to The Times in 1840:

In 1841, Clare absconded from the asylum in Essex, to walk some 90 miles (140 km) home, believing that he was to meet his first love Mary Joyce; Clare was convinced that he was married to her and Martha as well, with children by both women. He did not believe her family when they told him she had died accidentally three years earlier in a house fire. He remained free, mostly at home in Northborough, for the five months following, but eventually Patty called the doctors in. Between Christmas and New Year in 1841, Clare was committed to the Northampton General Lunatic Asylum (now St Andrew's Hospital). Upon Clare's arrival at the asylum, the accompanying Doctor, Fenwick Skrimshire, who had treated Clare since 1820, completed the admission papers. To the enquiry "Was the insanity preceded by any severe or long-continued mental emotion or exertion?", Dr Skrimshire entered: "After years of poetical prosing." He remained here for the rest of his life under the humane regime of Dr Thomas Octavius Prichard, who encouraged and helped him to write. Here he wrote possibly his most famous poem, I Am.

He died on 20 May 1864, in his 71st year. His remains were returned to Helpston for burial in St Botolph’s churchyard. Today, children at the John Clare School, Helpston's primary, parade through the village and place their "midsummer cushions" around Clare's gravestone (which bears the inscriptions "To the Memory of John Clare The Northamptonshire Peasant Poet" and "A Poet is Born not Made") on his birthday, in honour of their most famous resident.

Clare was relatively forgotten during the later 19th century, but interest in his work was revived by Arthur Symons in 1908, Edmund Blunden in 1920 and John and Anne Tibble in their ground-breaking 1935 two-volume edition, while in 1949 Geoffrey Grigson edited Poems of John Clare's Madness (published by Routledge and Kegan Paul). Benjamin Britten set some of "May" from A Shepherd's Calendar in his Spring Symphony of 1948, and included a setting of The Evening Primrose in his Five Flower Songs.

Copyright to much of his work has been claimed since 1965 by the Editor of the Complete Poetry, Professor Eric Robinson, although these claims were contested. Recent publishers have refused to acknowledge the claim (especially in recent editions from Faber and Carcanet) and it seems the copyright is now defunct.

Since 1993, the John Clare Society of North America has organised an annual session of scholarly papers concerning John Clare at the annual Convention of the Modern Language Association of America.

In 2003 the scholar Jonathan Bate published the first major critical biography of the poet. This has helped to maintain the revival in popular and academic interest in the poet.

The thatched cottage where Clare was born was bought by the John Clare Trust in 2005. In May 2007 the Trust gained £1.27 million of funding from the Heritage Lottery Fund and commissioned Jefferson Sheard Architects to create a new landscape design and Visitor Centre, including a cafe, shop and exhibition space. The Cottage at 12 Woodgate, Helpston, has been restored using traditional building methods and is open to the public.

In 2013 the John Clare Trust received a further grant from the Heritage Lottery Fund to help preserve the building and provide educational activities for youngsters visiting the cottage.