Benjamin and his younger siblings, Georg (1895–1942) and Dora (1901–1946), were born to a wealthy Business family of assimilated Ashkenazi Jews in the Berlin of the German Empire (1871–1918). The patriarch of Walter Benjamin's family, Emil Benjamin, was a banker in Paris who relocated from France to Germany, where he worked as an antiques trader in Berlin; he later married Pauline Schönflies. He owned a number of Investments in Berlin, including ice skating rinks. Benjamin's uncle william Stern (born Wilhelm Louis Stern; 1871-1938) was a prominent German child Psychologist who developed the concept of the intelligence quotient (IQ), and Benjamin's cousin Günther Anders (born Günther Siegmund Stern; 1902-1992) was a German Philosopher and anti-nuclear Activist who studied under Edmund Husserl and Martin Heidegger. In 1902, ten-year-old Walter was enrolled to the Kaiser Friedrich School in Charlottenburg; he completed his secondary school studies ten years later. Walter Benjamin was a boy of fragile health and so in 1905 the family sent him to Hermann-Lietz-Schule Haubinda, a boarding school in the Thuringian countryside, for two years; in 1907, having returned to Berlin, he resumed his schooling at the Kaiser Friedrich School.

In 1912, at the age of twenty, he enrolled at the University of Freiburg, but, at summer semester's end, returned to Berlin, then matriculated into the University of Berlin, to continue studying philosophy. Here Benjamin had his first exposure to the ideas of Zionism, which had not been part of his liberal upbringing. This exposure gave him occasion to formulate his own ideas about the meaning of Judaism. Benjamin distanced himself from political and nationalist Zionism, instead developing in his own thinking what he called a kind of "cultural Zionism"—an attitude which recognized and promoted Judaism and Jewish values. In Benjamin's formulation his Jewishness meant a commitment to the furtherance of European culture. Benjamin expressed "My life experience led me to this insight: the Jews represent an elite in the ranks of the spiritually active ... For Judaism is to me in no sense an end in itself, but the most distinguished bearer and representative of the spiritual." This was a position that Benjamin largely held lifelong.

In 1914, at the outbreak of the First World War (1914–1918), Benjamin began faithfully translating the works of the 19th-century French poet Charles Baudelaire (1821–1867). The next year, 1915, he moved to Munich, and continued his schooling at the University of Munich, where he met Rainer Maria Rilke and Gershom Scholem; the latter became a friend. In that year, Benjamin wrote about the 18th-century Romantic German poet Friedrich Hölderlin (1770–1843).

In 1917 he transferred to the University of Bern; there, he met Ernst Bloch, and Dora Sophie Pollak (née Kellner) (1890–1964) whom he later married. They had a son, Stefan Rafael (1918–1972). In 1919 Benjamin earned his Ph.D. cum laude with the dissertation Begriff der Kunstkritik in der Deutschen Romantik (The Concept of Art Criticism in German Romanticism). Later, unable to support himself and family, he returned to Berlin and resided with his parents. In 1921 he published the essay Kritik der Gewalt (The Critique of Violence). At this time Benjamin first became socially acquainted with Leo Strauss, and Benjamin would remain an admirer of Strauss and of his work throughout his life.

In 1923, when the Institut für Sozialforschung (Institute for Social Research) was founded, later to become home to the Frankfurt School, Benjamin published Charles Baudelaire, Tableaux Parisiens. At that time he became acquainted with Theodor Adorno and befriended Georg Lukács, whose The Theory of the Novel (1920) much influenced him. Meanwhile, the inflation in the Weimar Republic consequent to the First World War made it difficult for the father Emil Benjamin to continue supporting his son's family. At the end of 1923 his best friend Gershom Scholem emigrated to Palestine, a country under the British Mandate of Palestine; despite repeated invitations, he failed to persuade Benjamin (and family) to leave the Continent for the Middle East.

In 1924 Hugo von Hofmannsthal, in the Neue Deutsche Beiträge magazine, published Goethes Wahlverwandtschaften (Elective Affinities), by Walter Benjamin, about Goethe's third novel, Die Wahlverwandtschaften (1809). Later that year Benjamin and Ernst Bloch resided on the Italian island of Capri; Benjamin wrote Ursprung des deutschen Trauerspiels (The Origin of German Tragic Drama), as a habilitation dissertation meant to qualify him as a tenured university professor in Germany. He also read, at Bloch's suggestion, History and Class Consciousness (1923) by Georg Lukács. He also met the Latvian Bolshevik and Actress Asja Lācis, then residing in Moscow; she became his lover and was a lasting intellectual influence upon him.

A year later, in 1925, Benjamin withdrew The Origin of German Tragic Drama as his possible qualification for the habilitation teaching credential at the University of Frankfurt at Frankfurt am Main, fearing its possible rejection; he was not to be an academic instructor. Working with Franz Hessel (1880–1941) he translated the first volumes of À la Recherche du Temps Perdu (In Search of Lost Time) by Marcel Proust. The next year, 1926, he began writing for the German newspapers Frankfurter Zeitung (The Frankfurt Times) and Die Literarische Welt (The Literary World); that paid enough for him to reside in Paris for some months. In December 1926 (the year his father, Emil Benjamin, died) Walter Benjamin went to Moscow to meet Asja Lācis and found her ill in a sanatorium.

The Arcades Project, in its current form, brings together a massive collection of notes which Benjamin filed together over the course of thirteen years, from 1927 to 1940.

Professor Schultz of University of Frankfurt found The Origin of German Tragic Drama inappropriate for his Germanistik department (Department of German Language and Literature), and passed it to the Department of Aesthetics (philosophy of art), the readers of which likewise dismissed Benjamin's work. The university officials recommended that Benjamin withdraw Ursprung des deutschen Trauerspiels as a Habilitation dissertation to avoid formal rejection and public embarrassment. He heeded the advice, and three years later, in 1928, he published The Origin of German Tragic Drama as a book.

A commemorative plaque is located by the residence where Benjamin lived in Berlin during the years 1930–1933: (Prinzregentenstraße 66, Berlin-Wilmersdorf). Close by Kurfürstendamm, in the district of Charlottenburg-Wilmersdorf, a town square created by Hans Kollhoff in 2001 was named "Walter-Benjamin-Platz". There is a memorial sculpture by the Artist Dani Karavan at Portbou, where Walter Benjamin ended his life. It was commissioned to mark 50 years since his death.

In 1932, during the turmoil preceding Adolf Hitler's assumption of the office of Chancellor of Germany, Walter Benjamin left Germany for the Spanish island of Ibiza for some months; he then moved to Nice, where he considered killing himself. Perceiving the socio-political and cultural significance of the Reichstag fire (27 February 1933) as the de facto Nazi assumption of full power in Germany, then manifest with the subsequent persecution of the Jews, he moved to Paris, but, before doing so, he sought shelter in Svendborg, at Bertolt Brecht's house, and at Sanremo, where his ex-wife Dora lived.

As he ran out of money, Benjamin collaborated with Max Horkheimer, and received funds from the Institute for Social Research, later going permanently into exile. In Paris, he met other German artists and intellectuals, refugees there from Germany; he befriended Hannah Arendt, Novelist Hermann Hesse, and Composer Kurt Weill. In 1936, a first version of The Work of Art in the Age of Mechanical Reproduction (L'œuvre d'art à l'époque de sa reproduction méchanisée) was published, in French, by Max Horkheimer in the Zeitschrift für Sozialforschung journal of the Institute for Social Research. It was a critique of the authenticity of mass-produced art; he wrote that a mechanically produced copy of an artwork can be taken somewhere where the original could never have gone, arguing that the presence of the original is "prerequisite to the concept of authenticity".

In 1937 Benjamin worked on Das Paris des Second Empire bei Baudelaire (The Paris of the Second Empire in Baudelaire), met Georges Bataille (to whom he later entrusted the Arcades Project manuscript), and joined the College of Sociology. In 1938 he paid a last visit to Bertolt Brecht, who was exiled to Denmark. Meanwhile, the Nazi Régime stripped German Jews of their German citizenship; now a stateless man, Benjamin was arrested by the French government and incarcerated for three months in a prison camp near Nevers, in central Burgundy.

The others in his party were allowed passage the next day (maybe because Benjamin's suicide shocked Spanish officials), and safely reached Lisbon on 30 September. Hannah Arendt, who crossed the French-Spanish border at Portbou a few months later, passed the manuscript of Theses to Adorno. Another completed manuscript, which Benjamin had carried in his suitcase, disappeared after his death and has not been recovered. Some critics speculate that it was his Arcades Project in a final form; this is very unlikely as the author's plans for the work had changed in the wake of Adorno's criticisms in 1938, and it seems clear that the work was flowing over its containing limits in his last years.

Theses on the Philosophy of History is often cited as Benjamin's last complete work, having been completed, according to Adorno, in the spring of 1940. The Institute for Social Research, which had relocated to New York, published Theses in Benjamin's memory in 1942. Margaret Cohen writes in the Cambridge Companion to Walter Benjamin:

Since the publication of Schriften (Writings, 1955), 15 years after his death, Benjamin's work—especially the essay "The Work of Art in the Age of Mechanical Reproduction" (1936)—has become of seminal importance to academics in the humanities disciplines. In 1968, the first Internationale Walter Benjamin Gesellschaft was established by the German thinker, poet and Artist Natias Neutert, as a free association of Philosophers, Writers, artists, media theoreticians and editors. They did not take Benjamin's body of thought as a scholastic "closed architecture [...], but as one in which all doors, windows and roof hatches are widely open", as the founder Neutert put it—more poetically than politically—in his manifesto. The members felt liberated to take Benjamin's ideas as a welcome touchstone for social change.

The Arcades Project was published for the first time in 1982, and is over a thousand pages long.

Like the first Internationale Walter Benjamin Gesellschaft, a new one, established in 2000, researches and discusses the imperative that Benjamin formulated in his Theses on the Philosophy of History: "In every era the attempt must be made anew to wrest the tradition away from a conformism that is about to overpower it."

Walter Benjamin corresponded much with Theodor Adorno and Bertolt Brecht, and was occasionally funded by the Frankfurt School under the direction of Adorno and Horkheimer, even from their New York City residence. The competing influences—Brecht's Marxism, Adorno's critical theory, Gerschom Scholem's Jewish mysticism—were central to his work, although their philosophic differences remained unresolved. Moreover, the critic Paul de Man argued that the intellectual range of Benjamin's writings flows dynamically among those three intellectual traditions, deriving a critique via juxtaposition; the exemplary synthesis is Theses on the Philosophy of History.

In 2017 Walter Benjamin's Arcades Project was reinterpreted in an exhibition curated by Jens Hoffman, held at the Jewish Museum in New York City. The exhibition, entitled "The Arcades: Contemporary Art and Walter Benjamin", features 36 contemporary artworks representing the 36 convolutes of Benjamin's Project.

The successor society was registered in Karlsruhe (Germany); Chairman of the Board of Directors was Bernd Witte, an internationally recognized Benjamin scholar and Professor of Modern German Literature in Düsseldorf (Germany). Its members come from 19 countries, both within and beyond Europe and represents an international forum for discourse. The Society supported research endeavors devoted to the creative and visionary potential of Benjamin's works and their view of 20th century modernism. Special emphasis had been placed upon strengthening academic ties to Latin America and Eastern and Central Europe. The society conducts conferences and exhibitions, as well as interdisciplinary and intermedial events, at regular intervals and different European venues: