Shepard was born on November 5, 1943, in Fort Sheridan, Illinois. He was named Samuel Shepard Rogers III after his Father, Samuel Shepard Rogers, Jr., but his nickname was "Steve Rogers". His Father was a Teacher and farmer who served in the United States Army Air Forces as a bomber pilot during World War II; Shepard characterized him as "a drinking man, a dedicated alcoholic". His mother, Jane Elaine (née Schook), was a Teacher and a native of Chicago.

Shepard worked on a ranch as a teenager. After graduating from Duarte High School in Duarte, California in 1961, he briefly studied animal husbandry at nearby Mt. San Antonio College, where he became enamored of Samuel Beckett, jazz, and abstract expressionism. Shepard soon dropped out to join a touring repertory group, the Bishop's Company.

After securing a position as a busboy at the Village Gate nightclub upon arriving in New York City, Shepard became involved in the Off-Off-Broadway theater scene in 1962 through Ralph Cook, the club's head waiter. At this time Samuel "Steve" Rogers adopted the professional name Sam Shepard. Although his plays would go on to be staged at several Off-Off-Broadway venues, he was most closely connected with Cook's Theatre Genesis, housed at St. Mark's Church in-the-Bowery in Manhattan's East Village. Most of his initial writing was for the stage; however, after winning six Obie Awards between 1966 and 1968, Shepard emerged as a viable Screenwriter with Robert Frank's Me and My Brother (1968) and Michelangelo Antonioni's Zabriskie Point (1970). Several of Shepard's early plays, including Red Cross (1966) and La Turista (1967), were directed by Jacques Levy. A habitué of the Chelsea Hotel scene of the era, Shepard also contributed to Kenneth Tynan's ribald Oh! Calcutta! (1969) and drummed sporadically from 1967 through 1971 with the psychedelic folk band The Holy Modal Rounders, appearing on their albums Indian War Whoop (1967) and The Moray Eels Eat The Holy Modal Rounders (1968).

When Shepard first arrived in New York City, he roomed with Charlie Mingus, Jr., a friend from his high school days and the son of jazz musician Charles Mingus. He then lived with Actress Joyce Aaron. From 1969 to 1984, he was married to Actress O-Lan Jones, with whom he had one son, Jesse Mojo Shepard (born 1970). From 1970 to 1971, Shepard was involved in an extramarital affair with musician Patti Smith, who remained unaware of Shepard's identity as a multiple Obie Award-winning Playwright until it was divulged to her by Jackie Curtis. According to Smith, "Me and his wife still even liked each other. I mean, it wasn't like committing adultery in the suburbs or something." After ending his relationship with Smith, Shepard relocated with his wife and son to London in the early 1970s. Returning to the U.S. in 1975, he moved to the 20-acre Flying Y Ranch in Mill Valley, California, where he raised a young colt named Drum and used to ride double with his young son on an appaloosa named Cody.

In 1975, Shepard was named playwright-in-residence at the Magic Theatre, where he created many of his notable works, including his Family Trilogy. One of the plays in the trilogy, Buried Child (1978), won the Pulitzer Prize, and was nominated for five Tony Awards. It also marked a major turning point in his career, heralding some of his best-known work, including True West (1980), Fool for Love (1983), and A Lie of the Mind (1985). A darkly comic tale of abortive reunion, in which a young man drops in on his grandfather's Illinois farmstead only to be greeted with devastating indifference by his relations, Buried Child saw Shepard stake a claim to the psychological terrain of classic American theater. Curse of the Starving Class (1978) and True West (1980), the other two plays of the trilogy, received their premier productions. Shepard was nominated for Pulitzer prizes for Fool for Love and True West. Some critics have expanded this trio to a quintet, incorporating Fool for Love (1983) and A Lie of the Mind (1985). Shepard won a record-setting 10 Obie Awards for writing and directing between 1966 and 1984.

Shepard began his acting career in earnest when cast in a major role as the land baron in Terrence Malick's Days of Heaven (1978), opposite Richard Gere and Brooke Adams. This led to other important film roles, including that of Cal, Ellen Burstyn's character's love interest in Resurrection (1980), and, most notably, Shepard's portrayal of Chuck Yeager in The Right Stuff (1983). The latter performance earned Shepard an Academy Award nomination for Best Supporting Actor. By 1986, his play Fool for Love was getting a film adaptation directed by Robert Altman, with Shepard in the lead role; his play A Lie of the Mind was being performed Off-Broadway with an all-star cast (including Harvey Keitel and Geraldine Page); and Shepard was subsequently working steadily as a film actor. These achievements, together, put him on the cover of Newsweek.

Despite having a longstanding aversion to flying, Shepard allowed the real Chuck Yeager to take him up in a jet plane in 1982, while preparing to play the test pilot in The Right Stuff. Shepard described his fear of flying as a source for a character in his 1966 play Icarus's Mother. He went through an airliner crash in the film Voyager, and according to one account, he vowed never to fly again after a very rocky trip on an airliner coming back from Mexico in the 1960s.

Shepard met Academy Award-winning Actress Jessica Lange on the set of the film Frances, in which they were both acting. He moved in with her in 1983, and they were together for nearly 30 years; they separated in 2009. They had two children, Hannah Jane (born 1985) and Samuel Walker Shepard (born 1987). In 2003, his elder son, Jesse, wrote a book of short stories that was published in San Francisco; Shepard appeared with him at a reading to introduce the book.

Over the years, Shepard taught extensively on play-writing and other aspects of theater. He gave classes and seminars at various theater workshops, festivals, and universities. Shepard was elected to the American Academy of Arts and Letters in 1986, and was elected a Fellow of the American Academy of Arts and Sciences in 1986. In 2000, Shepard decided to repay a debt of gratitude to the Magic Theatre by staging his play The Late Henry Moss as a benefit in San Francisco. The cast included Nick Nolte, Sean Penn, Woody Harrelson, and Cheech Marin. The limited, three-month run was sold out. In 2001, Shepard played General william F. Garrison in the box office hit Black Hawk Down. Although he was cast only in a supporting role, Shepard enjoyed renewed interest in his talent for screen acting.

Shepard performed Spalding Gray's final monologue, Life Interrupted, for the audiobook version, released in 2006. In 2007, Shepard contributed banjo to Patti Smith's cover of Nirvana's song "Smells Like Teen Spirit" on her album Twelve. Although many artists had an influence on Shepard's work, one of the most significant was actor-director Joseph Chaikin, a veteran of The Living Theatre and founder of a group called the Open Theatre. The two often worked together on various projects, and Shepard acknowledged that Chaikin was a valuable mentor.

In the early morning hours of January 3, 2009, Shepard was arrested and charged with speeding and drunken driving in Normal, Illinois. He pled guilty to both charges on February 11, 2009, and was sentenced to 24 months probation, alcohol education classes, and 100 hours of community Service. On May 25, 2015, Shepard was arrested again, this time in Santa Fe, New Mexico, for aggravated drunk driving.

In 2010, a revival of A Lie of the Mind was staged in New York at the same time as Shepard's new play Ages of the Moon opened there. Reflecting on the two plays, Shepard said that, to him, the older play felt "awkward", adding, "All of the characters are in a fractured place, broken into pieces, and the pieces don't really fit together," while the newer play "is like a Porsche. It's sleek, it does exactly what you want it to do, and it can speed up but also shows off great brakes." The revival and new play also coincided with the publication of Shepard's collection Day out of Days: Stories (the title echoes a filmmaking term). The book includes "short stories, poems and narrative sketches... that developed from dozens of leather-bound notebooks [Shepard] carried with him over the years."

In 2011, Shepard starred in the film Blackthorn. Shepard's most recent movie appearance is Never Here; it premiered in June 2017 but had been filmed in the fall of 2014. Shepard also appeared in Bloodline between 2014-2017.

His 50-year friendship with Johnny Dark (stepfather to O-Lan Jones) was the subject of the documentary Shepard & Dark (2013) by Treva Wurmfeld. A collection of Shepard and Dark's correspondence, Two Prospectors, was also published that year.

Shepard died on July 27, 2017, at his home in Kentucky, aged 73, from complications of amyotrophic lateral sclerosis. Patti Smith paid homage in The New Yorker to their long collaboration.