Stephen Leacock was born in Swanmore, a village near Southampton in southern England. He was the third of the eleven children born to (Walter) Peter Leacock (b.1834), who was born and grew up at Oak Hill on the Isle of Wight, an estate that his grandfather had purchased after returning from Madeira where his family had made a fortune out of plantations and Leacock's Madeira wine, founded in 1760. Stephen's mother, Agnes, was born at Soberton, the youngest daughter by his second wife (Caroline Linton Palmer) of the Rev. Stephen Butler, of Bury Lodge, the Butler estate that overlooked the village of Hambledon, Hampshire. Stephen Butler (for whom Leacock was named), was the maternal grandson of Admiral James Richard Dacres and a brother of Sir Thomas Dacres Butler, Usher of the Black Rod. Leacock's mother was the half-sister of Major Thomas Adair Butler, who won the Victoria Cross at the siege and capture of Lucknow.

Leacock was born in England in 1869. His father, Peter Leacock, and his mother, Agnes Emma Butler Leacock, were both from well-to-do families. The family, eventually consisting of eleven children, immigrated to Canada in 1876, settling on a one hundred-acre farm in Sutton, Ontario. There Stephen was home-schooled until he was enrolled in Upper Canada College, Toronto. He became the head boy in 1887, and then entered the University of Toronto to study languages and literature. Despite completing two years of study in one year, he was forced to leave the university because his father had abandoned the family. Instead, Leacock enrolled in a three-month course at Strathroy Collegiate Institute to become a qualified high school Teacher.

Peter's father, Thomas Murdock Leacock J.P., had already conceived plans eventually to send his son out to the colonies, but when he discovered that at age eighteen Peter had married Agnes Butler without his permission, almost immediately he shipped them out to South Africa where he had bought them a farm. The farm in South Africa failed and Stephen's parents returned to Hampshire, where he was born. When Stephen was six, he came out with his family to Canada, where they settled on a farm near the village of Sutton, Ontario, and the shores of Lake Simcoe. Their farm in the township of Georgina in York County was also unsuccessful, and the family was kept afloat by money sent from Leacock's paternal grandfather. His father became an alcoholic; in the fall of 1878, he travelled west to Manitoba with his brother E.P. Leacock (the subject of Stephen's book My Remarkable Uncle, published in 1942), leaving behind Agnes and the children.

In 1887, seventeen-year-old Leacock started at University College at the University of Toronto, where he was admitted to the Zeta Psi fraternity. His first year was bankrolled by a small scholarship, but Leacock found he could not return to his studies the following year because of financial difficulties. He left university to work as a teacher—an occupation he disliked immensely—at Strathroy, Uxbridge and finally in Toronto. As a Teacher at Upper Canada College, his alma mater, he was able simultaneously to attend classes at the University of Toronto and, in 1891, earn his degree through part-time studies. It was during this period that his first writing was published in The Varsity, a campus newspaper.

His first appointment was at Uxbridge High School, Ontario, but he was soon offered a post at Upper Canada College, where he remained from 1889 through 1899. At this time, he also resumed part-time studies at the University of Toronto, graduating with a B.A. in 1891. However, Leacock's real interests were turning towards economics and political theory, and in 1899 he was accepted for postgraduate studies at the University of Chicago, where he earned his PhD in 1903

Leacock began submitting articles to the Toronto humor magazine Grip in 1894, and soon was publishing many humorous articles in Canadian and American magazines. In 1910, he privately published the best of these as Literary Lapses. The book was spotted by a British publisher, John Lane, who brought out editions in London and New York, assuring Leacock's Future as a Writer. This was confirmed by Literary Lapses (1910), Nonsense Novels (1911) – probably his best books of humorous sketches—and by the more sentimental favorite, Sunshine Sketches of a Little Town (1912). John Lane introduced the young Cartoonist Annie Fish to illustrate his 1913 book Behind the Beyond. Leacock's humorous style was reminiscent of Mark Twain and Charles Dickens at their sunniest—for Example in his even and satisfying My Discovery of England (1922). However, his Arcadian Adventures with the Idle Rich (1914) is a darker collection that satirizes city life. Collections of sketches continued to follow almost annually at times, with a mixture of whimsy, parody, nonsense, and satire that was never bitter.

Disillusioned with teaching, in 1899 he began graduate studies at the University of Chicago under Thorstein Veblen, where he received a doctorate in political science and political economy. He moved from Chicago, Illinois to Montreal, Quebec, where he eventually became the william Dow Professor of Political Economy and long-time chair of the Department of Economics and Political Science at McGill University.

In 1900 Leacock married Beatrix Hamilton, niece of Sir Henry Pellatt, who had built Casa Loma, the largest castle in North America. In 1915, after 15 years of marriage, the couple had their only child, Stephen Lushington Leacock. While Leacock doted on the boy, it soon became apparent that "Stevie" suffered from a lack of growth hormone. Growing to be only four feet tall, he had a love-hate relationship with Leacock, who tended to treat him like a child. Beatrix died in 1925 due to breast cancer.

Early in his career, Leacock turned to fiction, humour, and short reports to supplement (and ultimately exceed) his regular income. His stories, first published in magazines in Canada and the United States and later in novel form, became extremely popular around the world. It was said in 1911 that more people had heard of Stephen Leacock than had heard of Canada. Also, between the years 1915 and 1925, Leacock was the most popular humorist in the English-speaking world.

During the summer months, Leacock lived at Old Brewery Bay, his summer estate in Orillia, across Lake Simcoe from where he was raised and also bordering Lake Couchiching. A working farm, Old Brewery Bay is now a museum and National Historic Site of Canada. Gossip provided by the local barber, Jefferson Short, provided Leacock with the material which would become Sunshine Sketches of a Little Town (1912), set in the thinly-disguised Mariposa.

"The proper punishment for the Hohenzollerns, and the Hapsburgs, and the Mecklenburgs, and the Muckendorfs, and all such puppets and princelings, is that they should be made to work; and not made to work in the glittering and glorious sense, as generals and chiefs of staff, and legislators, and land-barons, but in the plain and humble part of labourers looking for a job. (Leacock 1919: 9)”

A humorist particularly admired by Leacock was Robert Benchley from New York. Leacock opened correspondence with Benchley, encouraging him in his work and importuning him to compile his work into a book. Benchley did so in 1922, and acknowledged the nagging from north of the border.

Predeceased by Trix (who had died of breast cancer in 1925), Leacock was survived by son Stevie (Stephen Lushington Leacock (1915–1974). In accordance with his wishes, after his death from throat cancer, Leacock was buried in the St George the Martyr Churchyard (St. George's Church, Sibbald Point), Sutton, Ontario

Although Prime Minister R.B. Bennett asked him to be a candidate for the 1935 Dominion election, Leacock declined the invitation. Nevertheless, he would stump for local Conservative candidates at his summer home.

Leacock was offered a post at McGill University, where he remained until he retired in 1936. In 1906, he wrote Elements of Political Science, which remained a standard college textbook for the next twenty years and became his most profitable book. He also began public speaking and lecturing, and he took a year's leave of absence in 1907 to speak throughout Canada on the subject of national unity. He typically spoke on national unity or the British Empire for the rest of his life.

Leacock was enormously popular not only in Canada but in the United States and Britain. In later life, Leacock wrote on the art of humor writing and also published biographies of Twain and Dickens. After retirement, a lecture tour to western Canada led to his book My Discovery of the West: A Discussion of East and West in Canada (1937), for which he won the Governor General’s Award. He also won the Mark Twain medal and received a number of honorary doctorates. Other nonfiction books on Canadian topics followed and he began work on an autobiography. Leacock died of throat cancer in Toronto in 1944. A prize for the best humour writing in Canada was named after him, and his house at Orillia on the banks of Lake Couchiching became the Stephen Leacock Museum.

Shortly after his death, Barbara Nimmo, his niece, literary executor and benefactor, published two major posthumous works: Last Leaves (1945) and The Boy I Left Behind Me (1946). His physical legacy was less treasured, and his abandoned summer cottage became derelict. It was rescued from oblivion when it was declared a National Historic Site of Canada in 1958 and ever since has operated as a museum called the Stephen Leacock Museum National Historic Site.

The Stephen Leacock Associates is a foundation chartered to preserve the literary legacy of Stephen Leacock, and oversee the annual award of the Stephen Leacock Memorial Medal for Humour. It is a prestigious honour, given to encourage Canadian humour writing and awarded for the best in Canadian humour writing. The foundation was instituted in 1946 and awarded the first Leacock Medal in 1947. The presentation occurs in June each year at the Stephen Leacock Award Dinner, at the Geneva Park Conference Centre in Orillia, Ontario.

In 1947, the Stephen Leacock Award was created to meet the best in Canadian literary humour. In 1969, the centennial of his birth, Canada Post issued a six-cent stamp with his image on it. The following year, the Stephen Leacock Centennial Committee had a plaque erected at his English birthplace and a mountain in the Yukon was named after him.

Two Leacock short stories have been adapted as National Film Board of Canada animated shorts by Gerald Potterton: My Financial Career and The Awful Fate of Melpomenus Jones. Sunshine Sketches, based on Sunshine Sketches of a Little Town, aired on CBC Television in 1952–1953; it was the first Canadian broadcast of an English-language dramatic series, as it debuted on the first night that television was broadcast in Toronto. In 2012, a screen adaptation based on Sunshine Sketches of a Little Town was aired on CBC Television to celebrate both the 75th anniversary of the CBC and the 100th anniversary of Leacock's original collection of short stories. The recent screen adaptation featured Gordon Pinsent as a mature Leacock.