She was born Marie Adrienne Koenig in New York City, the second-oldest child of Joseph and Mary (née Miller) Koenig. Her maternal grandparents had emigrated from France while her paternal grandparents had emigrated from Germany. She had two brothers, william Robert (born November 1889) and Howard Joseph (born January 1884).

The family eventually moved to an apartment in the Lower East Side. In May 1896, Joseph Koenig, Murray's father, died from acute gastritis due to his alcoholism. To support the family, Mary Koenig took a job as a housekeeper for Harry Payne Whitney.

She first began acting on the Broadway stage in 1906 with Dancer Vernon Castle. In 1908, she joined the chorus line of the Ziegfeld Follies, moving up to headliner by 1915. Murray became a star of the club circuit in both the United States and Europe, performing with Clifton Webb, Rudolph Valentino, and John Gilbert as some of her many dance partners.

In September 1908, in Hoboken, New Jersey, while she was appearing in the Follies of 1908, Murray married william M. Schwenker, Jr. (born 1885), the unemployed son of a brewery-supply dealer, who cut off his son's allowance upon news of the wedding; they divorced in 1910. On December 18, 1916, she married former Dancer and Future Olympic bobsled champion Jay O'Brien.

After divorcing O'Brien in 1918, Murray wed movie Director Robert Z. Leonard on August 18, 1918; they divorced on May 26, 1925.

In the early 1920s, Murray was painted by the well known Hollywood portrait Painter Theodore Lukits. This work titled Symphony in Jade and Gold (The Actress Mae Murray) (1922, Private Collection, Northern California) depicted Murray in the nude, gazing in a mirror. It was exhibited at the Pacific Asia Museum in 1999 and two other venues as part of the exhibition Theodore Lukits, An American Orientalist.

Murray appeared in the title role in the Erich von Stroheim directed film The Merry Widow (1925), opposite John Gilbert. When silent films gave way to talkies, Murray made an insecure debut in the new medium in Peacock Alley (1930), a remake of her earlier 1921 version Peacock Alley. In 1931, she was cast with newcomer Irene Dunne, leading man Lowell Sherman, and with fellow silent screen star Norman Kerry in the talkie Bachelor Apartment. The film was critically panned at the time of release and Murray made only one more film, High Stakes (1931) also with Sherman.

Murray married her fourth husband, David Mdivani, on June 27, 1926. They had one child, Koran David Mdivani (born 1927), before divorcing in 1933. Koran was later raised by Sara Elizabeth "Bess" Cunning of Averill Park, New York, who began taking care of him in 1936, when the child was recovering from a double mastoid operation (Cunning's brother Dr. David Cunning was the surgeon). When Murray attempted to regain custody of her son in 1939, Cunning and her other brothers, John, Ambrose, and Cortland, refused, according to the New York Times, at which time Murray and her former husband, Mdivani, entered a bitter custody dispute. It finally ended in 1940, with Murray being given legal custody of the child and the court ordering Mdivani to pay $400 a month maintenance. However, Koran Mdivani continued to live with Bess Cunning, who adopted him in 1940 under the name Daniel Michael Cunning. Reportedly, Mdivani had managed to siphon off most of Murray's money.

Meanwhile, in 1927, Murray was sued by her then-masseuse, the famous Hollywood fitness guru Sylvia of Hollywood for the outstanding amount of $2,125 during a humiliating and detailed court case.

In the 1940s, Murray appeared regularly at Billy Rose's Diamond Horseshoe, a nightclub which specialized in a "Gay '90s" atmosphere, often presenting stars of the past for nostalgic value. Her appearances collected mixed reviews: her dancing (in particular the Merry Widow Waltz) was well received, but Murray refused to acknowledge her age, wearing heavy layers of makeup and fitting her mature figure into short skirted costumes with plunging necklines. In 1946, she taught ballroom dancing to young teenagers at a dance studio in Los Angeles. It was located on Crenshaw Blvd. near 48th St.

Murray's finances continued to collapse, and for most of her later life she lived in poverty. She was the subject of an authorized biography, The Self-Enchanted (1959), written by Jane Ardmore, that has often been incorrectly called Murray's autobiography.

In February 1964, Murray was found disoriented in St. Louis, thinking that she had completed a bus trip to New York. Murray explained to a Salvation Army officer that she had become lost trying to find her hotel, which she had forgotten the name of. She also refused bus fare back to Los Angeles as she claimed to have a ticket for the remainder of the journey in her purse, "if she could find it."

Many years later, Murray moved into the Motion Picture House in Woodland Hills, a retirement community for Hollywood professionals. She died there on March 23, 1965 at the age of 79. She is interred in Valhalla Memorial Park Cemetery, North Hollywood, California.