Salvatore Lucania was born on November 24, 1897 in Lercara Friddi, Sicily, Italy. Luciano's parents, Antonio and Rosalia Capporelli-Lucania, had four other children: Bartolomeo (born 1890), Giuseppe (born 1898), Filippa (born 1901), and Concetta. Luciano's father worked in a sulfur mine in Sicily.

His father was very ambitious and persistent in eventually moving to America. Luciano recounts in his semi-autobiography The Last Testament of Lucky Luciano: The Mafia Story in His Own Words that his father always had a new Palermo based steamship company calendar each year and would save money for the boat trip by keeping a jar under his bed. He also mentions in the book that his father was too proud to ask for money so instead his mother was given money by Luciano's cousin in secret, named Rotolo who also lived in Lercara Friddi. In April 1906, when Luciano was nine years old, the family emigrated to the United States. They settled in New York City in the borough of Manhattan on its Lower East Side, a popular destination for Italian immigrants. At age 14, Luciano dropped out of school and started a job delivering hats, earning $7 per week. However, after winning $244 in a dice game, Luciano quit his job and went to earning money on the street. That same year, Luciano's parents sent him to the Brooklyn Truant School.

Luciano soon became a top aide in Masseria's Criminal organization. In contrast to Rothstein, Masseria was uneducated, with poor manners and limited managerial skills. By the late 1920s, Masseria's main rival was boss Salvatore Maranzano, who had come from Sicily to run the Castellammarese clan. Maranzano refused to pay commissions to Masseria. Their rivalry eventually escalated into the bloody Castellammarese War and ultimately resulted in the deaths of both Maranzano and Masseria.

Rothstein served as a mentor for Luciano; among other things, Rothstein taught how to move in high society. In 1923, Luciano was caught in a sting selling heroin to undercover agents. Although he saw no jail time, being outed as a drug peddler damaged his reputation among his high class associates and customers. To salvage his reputation, Luciano bought 200 expensive seats to the Jack Dempsey–Luis Firpo boxing match in the Bronx and distributed them to top Gangsters and politicians. Rothstein then took Luciano on a shopping trip to Wanamaker's Department Store in Manhattan to buy expensive clothes for the fight. The strategy worked, and Luciano's reputation was saved.

By 1925, Luciano was grossing over $12 million a year. He had a net income of around $4 million each year after the costs of bribing politicians and police. Luciano and his partners ran the largest bootlegging operation in New York, one that also extended into Philadelphia. He imported Scotch whisky from Scotland, rum from the Caribbean, and whisky from Canada. Luciano was also involved in illegal gambling.

In 1929, Luciano met Gay Orlova, a featured Dancer in one of Broadway's leading nightclubs, Hollywood. They were inseparable until he went to prison, but were never married. In early 1948, he met Igea Lissoni, a Milanese ballerina 20 years his junior, whom he later described as the love of his life. In the summer, Lissoni moved in with him. Although some reports said the couple married in 1949, others state that they only exchanged rings. Luciano and Lissoni lived together in Luciano's house in Naples. He continued to have affairs with other women, causing many arguments between him and Lissoni. During these arguments, Luciano would sometimes physically strike her. In 1959, Lissoni died of breast cancer.

During the early 1930s, Luciano's crime family started taking over small scale prostitution operations in New York City. In June 1935, New York Governor Herbert H. Lehman appointed Dewey, a U.S. Attorney, as a special prosecutor to combat organized crime in the city. Dewey soon realized that he could attack Luciano, the most powerful gangster in New York, through this prostitution network with the assistance of Asch.

By September 1931, Maranzano realized Luciano was a threat, and hired Vincent "Mad Dog" Coll, an Irish gangster, to kill him. However, Lucchese alerted Luciano that he was marked for death. On September 10, Maranzano ordered Luciano and Genovese to come to his office at the 230 Park Avenue in Manhattan. Convinced that Maranzano planned to murder them, Luciano decided to act first. He sent to Maranzano's office four Jewish Gangsters whose faces were unknown to Maranzano's people. They had been secured with the aid of Lansky and Siegel. Disguised as government agents, two of the Gangsters disarmed Maranzano's Bodyguards. The other two, aided by Lucchese, who was there to point Maranzano out, stabbed the boss multiple times before shooting him. This assassination was the first of what would later be fabled as the "Night of the Sicilian Vespers."

On December 20, during the conference, Luciano had a private meeting with Genovese in Luciano's hotel suite. The year before, Genovese had been returned from Italy to New York to face trial on his 1934 murder charge. However, in June 1946, the charges were dismissed and Genovese was free to return to mob Business. Unlike Costello, Luciano had never trusted Genovese. In the meeting, Genovese tried to convince Luciano to become a titular "boss of bosses" and let Genovese run everything. Luciano calmly rejected Genovese's suggestion:

The group's first test came in 1935, when it ordered gang boss Dutch Schultz to drop his plans to murder Special Prosecutor Thomas E. Dewey. Luciano argued that a Dewey assassination would precipitate a massive law enforcement crackdown. A defiant Schultz told the Commission that he was going to kill Dewey (or his assistant David Asch) in the next three days. In response, the Commission quickly arranged Schultz's murder. On October 24, 1935, before he could kill Dewey or Asch, Schultz was murdered in a tavern in Newark, New Jersey.

Luciano was first imprisoned at Sing Sing Correctional Facility in Ossining, New York. However, later in 1936, authorities moved him to Clinton Correctional Facility in Dannemora, a remote facility far away from New York City. At Clinton, Betillo prepared special dishes for Luciano in a kitchen set aside by authorities. Luciano was assigned a job in the prison laundry. Luciano used his influence to help get the materials to build a church at the prison, which became famous for being one of the only freestanding churches in the New York State correctional system and also for the fact that on the church's altar are two of the original doors from the Victoria, the ship of Ferdinand Magellan.

Luciano continued to run his crime family from prison, relaying his orders through acting boss Genovese. However, in 1937, Genovese fled to Naples to avoid an impending murder indictment in New York. Luciano appointed his consigliere, Costello, as the new acting boss and the overseer of Luciano's interests.

Luciano's legal appeals continued until October 10, 1938, when the U.S. Supreme Court refused to review his case. At this point, Luciano stepped down as family boss, and Costello formally replaced him.

During World War II, the US government struck a secret deal with the imprisoned Luciano. In 1942, the Office of Naval Intelligence was concerned about German and Italian agents entering the US through the New York waterfront. They also worried about sabotage in these facilities. Knowing that the Mafia controlled the waterfront, the US Navy contacted Lansky about a deal with Luciano. To facilitate negotiations, Luciano was transferred to Great Meadow Correctional Facility in Comstock, New York, which was much closer to New York City.

The Navy, the State of New York and Luciano reached a deal: in exchange for a commutation of his sentence, Luciano promised the complete assistance of his organization in providing intelligence to the Navy. Anastasia, a Luciano ally who controlled the docks, allegedly promised no dockworker strikes during war. In preparation for the 1943 allied invasion of Sicily, Luciano allegedly provided the US military with Sicilian Mafia contacts. This collaboration between the Navy and the Mafia became known as Operation Underworld.

In 1946, Lansky called a meeting of the heads of the major crime families in Havana that December, dubbed the Havana Conference. The ostensible reason was to see singer Frank Sinatra perform. However, the real reason was to discuss mob Business with Luciano in attendance. The three topics under discussion were: the heroin trade, Cuban gambling, and what to do about Siegel and his floundering Flamingo Hotel project in Las Vegas. The Conference took place at the Hotel Nacional de Cuba and lasted a little more than a week.

After Luciano's secret trip to Cuba, he spent the rest of his life in Italy under tight police surveillance. When he arrived in Genoa on April 11, 1947, Italian police arrested him and sent him to a jail in Palermo. On May 11, a regional commission in Palermo warned Luciano to stay out of trouble and released him.

In early July 1949, police in Rome arrested Luciano on suspicion of involvement in the shipping of narcotics to New York. On July 15, after a week in jail, police released Luciano without filing any charges. The authorities also permanently banned him from visiting Rome. On June 9, 1951, he was questioned by Naples police on suspicion of illegally bringing $57,000 in cash and a new American car into Italy. After 20 hours of questioning, police released Luciano without any charges.

In 1952, the Italian government revoked Luciano's passport after complaints from US and Canadian law enforcement officials. On November 1, 1954, an Italian judicial commission in Naples applied strict limits on Luciano for two years. He was required to report to the police every Sunday, to stay home every night, and to not leave Naples without police permission. The commission cited Luciano's alleged involvement in the narcotics trade as the reason for these restrictions.

On October 26, 1957, Genovese and Gambino arranged the murder of Anastasia, another Luciano ally. The following month, Genovese called a meeting of bosses in Apalachin, New York to approve his takeover of the Luciano family and to establish his national power. Instead, the Apalachin Meeting turned into a fiasco when law enforcement raided the meeting. Over 65 high-ranking mobsters were arrested and the Mafia was subjected to publicity and numerous grand jury summons. The enraged mobsters blamed Genovese for the disaster, opening a window of opportunity for Genovese's opponents.

Costello, Luciano, and Gambino met in a hotel in Palermo to discuss their plan of action. In his own power move, Gambino had deserted Genovese. After their meeting, Luciano allegedly paid an American drug dealer $100,000 to falsely implicate Genovese in a drug deal. On April 4, 1959, Genovese was convicted in New York of conspiracy to violate federal narcotics laws. Sent to prison for 15 years, Genovese tried to run his crime family from prison until his death in 1969. Meanwhile, Gambino now became the most powerful man in the Cosa Nostra.

On January 26, 1962, Luciano died of a heart attack at Naples International Airport. He had gone to the airport to meet with American Producer Martin Gosch about a film based on his life. To avoid antagonizing other Mafia members, Luciano had previously refused to authorize a film, but reportedly relented after Lissoni's death. After the meeting with Gosch, Luciano was stricken with a heart attack and died. He was unaware that Italian drug agents had followed him to the airport in anticipation of arresting him on drug smuggling charges.

Gambino was the only other boss besides Luciano to have complete control of the Commission and virtually every Mafia family in the US. In popular culture, proponents of the Mafia and its history often debate as to who was better known between Luciano and his contemporary, Al Capone. The much-publicized exploits of Capone with the Chicago Outfit made him the more well-known mobster in American history, but he did not exert influence over other Mafia families as Luciano did in the creation, and running of The Commission. In 1998, Time characterized Luciano as the "criminal mastermind" among the top 20 most influential builders and titans of the 20th century.