Murch was born in New York City, New York, the son of Katharine (née Scott) and Canadian-born Walter Tandy Murch (1907–1967), a Painter. As a boy, he began to experiment with sound recording, taping unusual sounds and layering them into new combinations. He attended The Collegiate School, a private preparatory school in Manhattan, from 1949 to 1961. In the summer of 1961 he worked as a music librarian and production assistant at newly founded radio station WRVR. He assisted with the July 29th 1961 live broadcast of a 12-hour folk music Hootenanny produced by Izzy Young. This featured, among many other acts, the first radio performance of the 20-year-old Bob Dylan. Murch then attended Johns Hopkins University from 1961 to 1965, graduating Phi Beta Kappa in Liberal Arts. Murch spent the university school year 1963-1964 in Europe, studying Romance Languages and the History of Art in Italy at Perugia and in France at the Sorbonne.

Murch married Muriel Ann "Aggie" Slater at Riverside Church, New York City, on August 6, 1965. The couple have lived in Bolinas, California, since 1972 and have 4 children: Walter Slater Murch, Beatrice Louise Murch, Carrie Angland, and Connie Angland.

Murch started editing and mixing sound with Francis Ford Coppola's The Rain People (1969). Subsequently, he worked on George Lucas's THX 1138 and American Graffiti and Coppola's The Godfather before editing picture and mixing sound on Coppola's The Conversation, for which he received an Academy Award nomination in sound in 1974. Murch also mixed the sound for Coppola's The Godfather Part II which was released in 1974, the same year as The Conversation. He did sound design work on Apocalypse Now, for which he won his first Academy Award in 1979. (He was also significantly involved in the re-editing work that resulted in the extended Apocalypse Now Redux in 2001.) In 1985 he directed his own film, Return to Oz, which he co-wrote with Gill Dennis. In 1988 Murch was one of the editors on The Unbearable Lightness of Being, directed by Phil Kaufman https://archive.org/details/WalterMurch7111990sideOneOfTwo, https://archive.org/details/WalterMurch7111990sideTwoOfTwoEdited

In 1979, he won an Oscar for the sound mix of Apocalypse Now as well as a nomination for picture editing. The movie was among the first stereo films to be mixed using an automated console. Additionally, the film is the first to credit anyone as Sound Designer, a professional designation that Murch is widely attributed to have coined as a means to help legitimate the field of post-production sound, much in the way william Cameron Menzies coined the term "Production Designer" in the 1930s.

Murch directed just one film in his entire career, the fantasy Return to Oz (which he co-wrote) in 1985. After the film failed at the box office, he never directed another film again.

Murch has written one book on film editing, In the Blink of an Eye (1995), which has been translated into many languages including Chinese, Italian, Hebrew, Spanish, French, German, Hungarian and Persian. Before this, he wrote the foreword to Michel Chion's Audio-Vision: Sound on Screen (1994). He was also the subject of Michael Ondaatje's book The Conversations (2002), which consists of several conversations between Ondaatje and Murch; the book emerged from Murch's editing of The English Patient, which was based on Ondaatje's novel of the same name.

In 1996, Murch worked on Anthony Minghella's The English Patient, which was based on Michael Ondaatje's novel of the same name. Murch won Oscars both for his sound mixing and for his editing. Murch's editing Oscar was the first to be awarded for an electronically edited film (using the Avid system), and he is the only person ever to win Oscars for both sound mixing and film editing.

In 2003, Murch edited another Anthony Minghella film, Cold Mountain on Apple's sub-$1000 Final Cut Pro software using off the shelf Power Mac G4 computers. This was a leap for such a big-budget film, where expensive Avid systems were usually the standard non-linear editing system. He received an Academy Award nomination for this work; his efforts on the film were documented in Charles Koppelman's 2004 book Behind the Seen.

In 2006, he was awarded an honorary doctorate of letters by the Emily Carr Institute of Art and Design in Vancouver, Canada.

In 2007 the documentary Murch premiered at the San Francisco International Film Festival, which centered on Murch and his thoughts on filmmaking.

In 2009, Murch's work was the subject of a tribute, "The Art of Walter Murch," a program in "The Professionals," a series by the California Film Institute at the Christopher B. Smith Rafael Film Center.

Murch is the 2012 recipient of the Nikola Tesla Award given by the International Press Academy Satellite Awards for "Visionary Achievement in Filmmaking Technology". Previous recipients have included Douglas Trumbull, James Cameron, Roger Deakins, Dennis Muren and George Lucas.

In 2015, Murch was presented with the Vision Award Nescens, at the 68th Locarno Film Festival, for his contributions to cinema. The two previous recipients of the award, initiated in 2013, were Douglas Trumbull and Garrett Brown.

In 2016, Murch was awarded an honorary doctorate of media by the Southampton Solent University in Southampton, England along with Anne Coates who received an honorary Doctorate of Arts.