Munro was born in the town of Wingham, Ontario into a family of fox and poultry farmers. Her father was Robert Eric Laidlaw and her mother, a school teacher, was Anne Clarke Laidlaw (née Chamney). She began writing as a teenager and published her first story, "The Dimensions of a Shadow," while a student at the University of Western Ontario in 1950. During this period she worked as a waitress, tobacco picker and library clerk. In 1951, she left the university, in which she had been majoring in English since 1949, to marry James Munro and move to Vancouver, British Columbia. Her daughters Sheila, Catherine, and Jenny were born in 1953, 1955, and 1957 respectively; Catherine died 15 hours after birth. In 1963, the Munros moved to Victoria where they opened Munro's Books. In 1966, their daughter Andrea was born.

Alice Munro's first collection of stories, Dance of the Happy Shades (1968), was highly acclaimed and won that year’s Governor General's Award, Canada’s highest literary prize. This success was followed by Lives of Girls and Women (1971), a collection of interlinked stories that was published as a novel.

Alice and James Munro were divorced in 1972. She returned to Ontario to become Writer-in-Residence at the University of Western Ontario. In 1976 she married Gerald Fremlin, a geographer. The couple moved to a farm outside Clinton, Ontario. They have since moved from the farm to a house in the town of Clinton.

In 1978, Munro's collection of interlinked stories, Who Do You Think You Are?, was published (titled The Beggar Maid: Stories of Flo and Rose in the United States). This book earned Munro the Governor General’s Literary Award for a second time. From 1979 to 1982, she toured Australia, China and Scandinavia. In 1980 Munro held the position of Writer-in-Residence at both the University of British Columbia and the University of Queensland. Through the 1980s and 1990s, Munro published a short-story collection about once every four years to increasing acclaim, winning both national and international awards.

In 2002, her daughter Sheila Munro published a childhood memoir, Lives of Mothers and Daughters: Growing Up With Alice Munro.

Alice Munro's stories frequently appear in publications such as The New Yorker, The Atlantic Monthly, Grand Street, Mademoiselle, and The Paris Review. In interviews to promote her 2006 collection The View from Castle Rock, Munro suggested that she would, perhaps, not publish any further collections. She has since recanted and published further work. Her latest collection, Too Much Happiness, was published in August 2009.

Her story "The Bear Came Over the Mountain" has been adapted for the screen and directed by Sarah Polley as the film Away from Her, starring Julie Christie and Gordon Pinsent. It successfully debuted at the 2006 Toronto International Film Festival. Polley's adaptation was nominated for an Academy Award for Best Adapted Screenplay, but lost to No Country for Old Men.

At a Toronto appearance in October 2009, Munro indicated that she received treatment for cancer and a heart condition, the latter situation requiring bypass surgery. At that time, she indicated that her next work would involve a theme of sexual ambivalence.

Many of Munro's stories are set in Huron County, Ontario. Her strong regional focus is one of the features of her fiction. Another is the omniscient narrator who serves to make sense of the world. Many compare Munro's small-town settings to writers of the U.S. rural South. As in the works of William Faulkner and Flannery O'Connor, her characters often confront deep-rooted customs and traditions. However, the reaction of Munro's characters is less intense than their Southern counterparts'. Thus, particularly with respect to her male characters, she may be said to capture the essence of everyman. Her female characters, though, are more complex. Much of Munro's work exemplifies the literary genre known as Southern Ontario Gothic.

Munro's work is often compared with the great short story writers. For example, the American writer Cynthia Ozick called Munro "our Chekhov." In Munro stories, as in Chekhov's, plot is secondary and "little happens." As with Chekhov, Garan Holcombe notes: "All is based on the epiphanic moment, the sudden enlightenment, the concise, subtle, revelatory detail." Munro's work deals with "love and work, and the failings of both. She shares Chekhov’s obsession with time and our much-lamented inability to delay or prevent its relentless movement forward."