Born in Fort Worth into a wealthy family, Van Zandt was a third-great-grandson of Isaac Van Zandt (a prominent leader of the Republic of Texas) and a second great-nephew of Khleber Miller Van Zandt (a major in the Confederate army and one of the founders of Fort Worth). Van Zandt County in east Texas was named after his family in 1848.

Townes's parents were Harris Williams Van Zandt (1913–1966) and Dorothy Townes (1919–1983). He had two siblings, Bill and Donna. Harris was a corporate Lawyer, and his career required the family to move several times during the 1950s and 1960s. In 1952, the family transplanted from Fort Worth to Midland, Texas, for six months before moving to Billings, Montana.

At Christmas in 1956, Townes's father gave him a guitar, which he practiced while wandering the countryside. He would later tell an interviewer that "watching Elvis Presley's October 28, 1956, performance on The Ed Sullivan Show was the starting point for me becoming a guitar player... I just thought that Elvis had all the money in the world, all the Cadillacs and all the girls, and all he did was play the guitar and sing. That made a big impression on me." In 1958 the family moved to Boulder, Colorado. Van Zandt would remember his time in Colorado fondly and would often visit it as an adult. He would later refer to Colorado in "My Proud Mountains", "Colorado Girl", and "Snowin' on Raton". Townes was a good student and active in team Sports. In grade school, he received a high IQ score, and his parents began grooming him to become a Lawyer or senator. Fearing that his family would move again, he willingly decided to attend the Shattuck School, in Faribault, Minnesota. He received a score of 1170 when he took the SAT in January 1962. His family soon moved to Houston, Texas.

Van Zandt's third and final marriage was to Jeanene Munsell (born February 21, 1957). They met on December 9, 1980 at a memorial for John Lennon. When the terminally-ill Dorothy Van Zandt learned that her son had impregnated Munsell, she told him, "You're going to do the right thing and honor that baby." He soon divorced his estranged second wife and married Munsell on March 14, 1983; their first child, william Vincent, was born ten days later. Another child, Katie Belle, was born February 14, 1992. Van Zandt and Munsell were divorced on May 2, 1994. However, the two remained close until Townes' death, and Jeanene was an executrix of his estate.

The University of Colorado at Boulder accepted Van Zandt as a student in 1962. In the spring of his second year, his parents flew to Boulder to bring Townes back to Houston, apparently worried about his binge drinking and episodes of depression. They admitted him to the University of Texas Medical Branch in Galveston, where he was diagnosed with manic depression. He received three months of insulin shock therapy, which erased much of his long-term memory. Afterwards, his mother claimed her "biggest regret in life was that she had allowed that treatment to occur". In 1965, he was accepted into the University of Houston's pre-law program. Soon after he attempted to join the Air Force, but was rejected because of a doctor's diagnosis that labelled him "an acute manic-depressive who has made minimal adjustments to life". He quit school around 1967, having been inspired by his singer-songwriter heroes to pursue a career in playing music.

Van Zandt married Fran Petters on August 26, 1965; a son, John Townes "J.T." Van Zandt II, was born to them on April 11, 1969, in Houston. The couple divorced on January 16, 1970. She would later remarry, changing her last name to Lohr. He began dating Cindy Morgan in 1974 and married her in 1978. Townes and Cindy became estranged for much of the early 1980s, and were divorced on February 10, 1983, in Travis County, Texas. They had no children together.

The years between 1968 and 1973 would prove to be Van Zandt's most prolific era. He released six albums during the time period: For the Sake of the Song, Our Mother the Mountain, Townes Van Zandt, Delta Momma Blues, High, Low and In Between, and The Late Great Townes Van Zandt. Among the tracks written for these albums were "To Live Is to Fly," "Pancho and Lefty", and "If I Needed You". These songs would eventually raise Van Zandt to near-legend status in American and European songwriting circles.

In the mid-1970s, Van Zandt split from his longtime manager, Kevin Eggers. He found a new manager, John Lomax III (grandson of the famed folk music Historian John Lomax), who set up a fan club for Van Zandt. Though the club was only advertised through small ads in the back of music magazines, Lomax immediately began to receive hundreds of impassioned letters from around the world written by people who felt touched by Van Zandt. Some of the letters described how his material often served as a crutch for those who were dealing with depression. In 1978, the singer fired Lomax and re-hired Eggers. He soon signed with Eggers' new label, Tomato Records. The following year, he recorded Flyin' Shoes; he would not release another album until 1987's At My Window. Despite critical acclaim, he remained a cult figure. He normally played small venues (often to crowds of fewer than fifty people) but began to move towards playing larger venues (and even made a handful of television appearances) during the 1990s. For much of the 1970s, he lived a reclusive life outside of Nashville in a tin-roofed, bare-boards shack with no heat, plumbing or telephone, occasionally appearing in town to play shows.

In 1972, Van Zandt recorded tracks for an album with a working title of Seven Come Eleven, which would remain unreleased for many years due to a dispute between his manager Kevin Eggers and Producer Jack Clement. Eggers either could not or refused to pay for the studio sessions, so Clement erased the master tapes. However, before they were deleted, Eggers snuck into the studio and recorded rough mixes of the songs on to a cassette tape. Tracks from the aborted Seven Come Eleven debacle would later surface on The Nashville Sessions.

In 1975, Van Zandt was featured prominently in the documentary film Heartworn Highways with Guy Clark, Steve Earle, Steve Young, Gamble Rogers, Charlie Daniels and David Allan Coe. His segment of the film was shot at his run-down trailer home in Austin, Texas, where Van Zandt is shown drinking straight whiskey during the middle of the day, shooting and playing with guns, and performing the songs "Waitin' Around to Die" and "Pancho & Lefty." His soon-to-be second wife Cindy and dog Geraldine (a large, "keenly intelligent" half-wolf, half-husky) are also featured in the film.

As a result of Van Zandt's constant drinking, Harold Eggers, Kevin's brother, was hired on as his tour manager and 24-hour caretaker in 1976, a partnership that would last for the rest of the singer's life. Although the musician was many years older than he was, Eggers would later say that Van Zandt was his "first child." His battles with addiction led him to be admitted to rehab almost a dozen times throughout the 1970s and 1980s. Medical records from his time in recovery centers show that he believed his drinking had become a Problem around 1973, and by 1982 he was drinking at least a pint of vodka daily. Doctors' notes reported: "He admits to hearing voices, mostly musical voices", and "Affect is blunted and mood is sad. Judgment and insight is impaired." At various points in his life, he was prescribed to take the antidepressant Zoloft and the mood stabilizer lithium. His final and longest period of sobriety during his adult life was a period of about a year in 1989 and 1990.

In 1977, Live at the Old Quarter, Houston, Texas was released. The album showcased Van Zandt solo at a 1973 concert before a small audience, and less elaborately produced than many of his early records. The album received positive reviews, and is considered by many to be among the best albums that the Songwriter ever released.

Van Zandt has been referred to as a cult musician and "a songwriter's Songwriter." Musician Steve Earle, who met him in 1978 and considered Van Zandt a mentor, once called Van Zandt "the best Songwriter in the whole world and I'll stand on Bob Dylan's coffee table in my Cowboy boots and say that." The quote was printed on a sticker featured on the packing of At My Window, much to Van Zandt's displeasure. In the years following, the quote was often cited by the press, much to Van Zandt and Earle's embarrassment; in 2009, Earle told the New York Times, "Did I ever believe that Townes was better than Bob Dylan? No." But he later concluded at the end of the same article that, "As a Songwriter, you won't find anybody better." Earle has championed the Songwriter on a number of occasions: his eldest son, Justin Townes Earle, also a musician, is named after Van Zandt. Earle wrote the song "Fort Worth Blues" as a tribute to the singer in the late 1990s, and in 2009 released an album titled Townes, which featured all covers of Van Zandt songs.

Several of Van Zandt's compositions were recorded by other artists, such as Emmylou Harris who, with Don Williams, had a No. 3 country hit in 1981 with "If I Needed You," and Willie Nelson and Merle Haggard, the pair taking "Pancho & Lefty" to number one on the country charts in 1983. Van Zandt had a small cameo appearance in the video for the song. In his later years he recorded less frequently, his voice and singing style altered in part because of his lifestyle and alcoholism. However, he continued writing songs, such as "Marie" and "The Hole".

According to Susanna Clark, Van Zandt turned down repeated invitations to write with Bob Dylan. Dylan was reportedly a "big fan" of Townes and claimed to have all of his records; Van Zandt admired Dylan's songs, but didn't care for his Celebrity. The two first met during a chance encounter outside a costume shop in the South Congress district of Austin, on June 21, 1986. According to Johnny Guess, Dylan later arranged another meeting with the Songwriter. The Drag in Austin was shut down due to Dylan being in town; Van Zandt drove his motorhome to the cordoned-off area, after which Dylan boarded the vehicle and requested to hear him play several songs. In May and June 1990, he opened for the Cowboy Junkies during a two-month-long tour of the United States and Canada, which exposed him to a younger generation of fans. As a result, he wrote the song "Cowboy Junkies Lament" for the group, with a verse about each respective member of the band.

Van Zandt continued writing and performing through the 1990s, though his output slowed noticeably as time went on. He had enjoyed some sobriety during the early 1990s, but was actively abusing alcohol during the final years of his life. In 1994, he was admitted to the hospital to detox, during which time a Doctor told Jeanene Van Zandt that trying to detox Townes again could potentially kill him. He grew increasingly frail during the mid-1990s, with friends noting that he seemed to have "withered."

Around the time of their April 1993 separation, Jeanene coaxed the musician into signing over the publishing rights of his entire back catalog and recording royalties to her and their children. Townes's only source of income after this point was money received from concert engagements, and even then, Townes would frequently visit his ex-wife and "give her all the money in his pockets." Following their divorce in 1994, his only worldly possessions were listed as a 1989 GMC Truck with camper shell, a 1984 Honda Shadow motorcycle and a 1983 Starwind 22-foot boat named Dorothy; he also retained sole ownership of his family inheritance of "ownership in oil lease and mineral rights."

In 1994, Israeli singer David Broza performed with Van Zandt during a Writers in the Round concert in Houston. When Van Zandt died, he left a shoe box full of unreleased poems and lyrics with a request that Broza set them to music. The resulting album was Night Dawn: The Unpublished Poetry of Townes Van Zandt.

At the time of his death, he had begun a long-distance relationship with a woman named Claudia Winterer from Darmstadt, Germany. The two met in November 1995 during a concert of his in Hanau, Germany. Van Zandt told several friends that he planned on marrying Winterer, but the two never became formally engaged.

In early 1996, he was contacted by Sonic Youth's Steve Shelley, who informed Van Zandt that he was interested in recording and releasing an album for him on the band's Ecstatic Peace label, funded by Geffen. Van Zandt agreed, and sessions were scheduled to begin in Memphis during late December of that year. On December 19 or 20, Van Zandt fell down the concrete stairs outside his home, badly injuring his hip. After lying outside for an hour, he dragged himself inside and called his ex-wife Jeanene, who sent friends Royann and Jim Calvin to check on him. He told the couple that he had sustained the injury while getting out of bed, and refused medical treatment. They took him back to their home, and he spent the Christmas week on their couch, unable to get up even to use the bathroom.

While Jeanene was on the phone with Susanna Clark, their son Will noticed that Townes had stopped breathing and "looked dead", and alerted his mother, who attempted to perform CPR, "screaming his name between breaths". Townes Van Zandt died in the early morning hours of January 1, 1997, at the age of 52. His official cause of death was "natural" cardiac arrhythmia. He died 44 years to the day after Hank Williams, Sr., who had been a songwriting influence.

Van Zandt's Roadsongs album version of The Rolling Stones' "Dead Flowers" was used during the final scene of the Coen Brothers' 1998 film, The Big Lebowski. The song was also included on the movie's Soundtrack. Since his death, Van Zandt's recordings have been licensed by his family for use in a number of films and television programs, including Stepmom, Six Feet Under, In Bruges, Calvary, Crazy Heart, Leaves of Grass, Seven Psychopaths, Deadwood, Breaking Bad , True Detective and Hell or High Water (Dollar Bill Blues), Most recently his "Buckskin Stallion Blues" has featured in Three Billboards Outside Ebbing, Missouri both in his original recording and a cover by Amy Annelle.

In 2004, the film Be Here To Love Me, chronicling the artist's life and musical career, was released in the United States. It was very well received, earning a 94% fresh rating on Rotten Tomatoes. Georgia Christgau of the Village Voice called the documentary "sympathetic but frank." Eddie Cockrell of Variety called the film "a dignified and wistful look at the unusual life, difficult career and lasting influence" of Van Zandt.

It was revealed through these proceedings that Van Zandt's annual income in the years before his death had climbed to over $100,000, thanks in large part to the royalties accrued from his songs being covered by Willie Nelson, Emmylou Harris, Merle Haggard, Cowboy Junkies, and other major music stars. After Van Zandt's death his road manager, Harold Egger, released video and audio recordings from the songwriter's concerts. An out-of-court settlement in 2006 granted the Van Zandts conditional control of Harold Eggers' mastered recordings while Harold retaining a 50% ownership of seven albums and some royalties for the remaining recordings.

A biography, titled To Live's To Fly: The Ballad of the Late, Great Townes Van Zandt by John Kruth, was released in 2007. It received mixed reviews, with Publishers Weekly lamenting that Kruth's "efforts are diminished by oddly alternating first- and third-person narratives, awkward transitions and text cluttered with excessive quotes... more insight into why – rather than countless tales of how – would have made this bio a more worthwhile read."

In April 2008, the University of North Texas Press published Robert Earl Hardy's biography on the Songwriter, titled A Deeper Blue: The Life and Music of Townes Van Zandt, which took more than eight years of research, including interviews with Mickey Newbury, Jack Clement, Guy and Susanna Clark, Mickey White, Rex Bell, Dan Rowland, Richard Dobson, John Lomax III, Van Zandt's brother and sister, cousins, his three ex-wives, and many others. The book has been described by Kirkus Reviews as a "poignant, clear and vivid portrait."

I'll Be Here in the Morning: The Songwriting Legacy of Townes Van Zandt by Brian T. Atkinson was released on New Year's Day 2012 by Texas A&M University Press, coinciding with the 15th anniversary of Van Zandt's death. The book contains interviews with longtime Van Zandt friends Guy Clark, Billy Joe Shaver, Ray Wylie Hubbard, Kris Kristofferson, Tom Russell and Peter Rowan as well as younger disciples such as Scott Avett (the Avett Brothers), Jim James (My Morning Jacket), Kasey Chambers, Josh Ritter and Grace Potter.

On June 18, 2015, Van Zandt was inducted into the second year's ceremony of the Austin City Limits Hall of Fame, along with Asleep at the Wheel, Loretta Lynn, Guy Clark and Flaco Jimenez. Gillian Welch inducted Van Zandt by telling stories about how he had come to her early gigs in Nashville and how he had bolstered her confidence in writing sad songs.