Murray, the fifth of nine children, was born and raised in Wilmette, Illinois, a northern suburb of Chicago, the son of Lucille (née Collins), a mail room clerk, and Edward Joseph Murray II, a lumber salesman. Murray, along with his siblings, grew up in an Irish Catholic family. Three of his siblings are actors: John Murray, Joel Murray, and Brian Doyle-Murray. His sister, Nancy, is an Adrian Dominican Sister in Michigan, traveling around the country portraying St. Catherine of Siena.

The family did not have much money, and Lucille Murray pressured her children to work. As a youth, Murray read children's biographies of American heroes like Kit Carson, Wild Bill Hickok and Davy Crockett. He attended St. Joseph's grade school and Loyola Academy. During his teenage years, he worked as a caddy to fund his education in a Jesuit High School. The 1960s were tough on Murray and his family. His father had diabetes, one of his sisters had polio and his mother had several miscarriages. During his teen years he was the lead singer of a rock band called the Dutch Masters and took part in high school and community theater.

After graduating, he attended Regis University in Denver, Colorado, taking pre-med courses. However, when police arrested him for possession of marijuana at Chicago's O'Hare Airport, he abandoned his studies. In 2007, Regis University awarded him an honorary Doctor of Humanities degree.

With an invitation from his older brother, Brian, Murray got his start at Second City Chicago studying under Del Close. The improvisational comedy troupe was a perfect fit for Murray's clever, dry humor and ad libbing. In 1974, he moved to New York City and was recruited by John Belushi as a featured player on The National Lampoon Radio Hour, which aired on some 600 stations from 1973 to 1974.

In 1975, an Off Broadway version of a Lampoon show led to his first television role as a cast member of the ABC variety show Saturday Night Live with Howard Cosell that featured animal acts and little kids with loud voices. That same season, another variety show titled NBC's Saturday Night premiered. Cosell's show lasted just one season, canceled in early 1976.

After working in Los Angeles with the "guerrilla video" commune TVTV on a number of projects, Murray rose to prominence in 1976. He joined the cast of NBC's Saturday Night Live for the show's second season, following the departure of Chevy Chase.

As the cult film had originated from a Rutland Weekend Television sketch that Eric Idle had brought for his appearance on SNL, Murray as part of the cast of SNL also appeared next to Idle, Dan Aykroyd, John Belushi, Michael Palin, and Neil Innes in the 1978 mockumentary All You Need Is Cash as "Bill Murray the K", a send-up of New York radio host Murray the K, in a segment of the film that is an obvious parody of the Maysles Brothers's documentary The First U.S. Visit.

During the first few seasons of SNL, Murray was in a serious, romantic relationship with fellow cast member Gilda Radner.

Murray landed his first starring role with the film Meatballs in 1979. He followed this up with his portrayal of famed writer Hunter S. Thompson in 1980's Where the Buffalo Roam. In the early 1980s, he starred in a string of box-office hits including Caddyshack, Stripes, and Tootsie.

Murray became the first guest on NBC's Late Night with David Letterman on February 1, 1982. He would later appear on the first episode of The Late Show with David Letterman in August 1993, when the show moved to CBS.

Murray began work on a film adaptation of the novel The Razor's Edge. The film, which Murray also co-wrote, was his first starring role in a dramatic film. He later agreed to star in Ghostbusters, in a role originally written for John Belushi. This was a deal Murray made with Columbia Pictures in order to gain financing for his film. Ghostbusters became the highest-grossing film of 1984. But The Razor's Edge, which was filmed before Ghostbusters but not released until after, was a box-office flop.

Upset over the failure of Razor's Edge, Murray took four years off from acting to study philosophy and history at the Sorbonne, frequent the Cinematheque in Paris, and spend time with his family in their Hudson River Valley home. During that time, his second son, Luke, was born. With the exception of a cameo appearance in the 1986 movie Little Shop of Horrors, he did not make any appearances in films, though he did participate in several public readings in Manhattan organized by playwright/director Timothy Mayer and in a production of Bertolt Brecht's A Man's A Man.

Murray returned to films in 1988 with Scrooged and the sequel Ghostbusters II in 1989. In 1990, Murray made his first and only attempt at directing when he co-directed Quick Change with producer Howard Franklin. His subsequent films What About Bob? (1991) and Groundhog Day (1993) were box-office hits and critically acclaimed.

After a string of films that did not do well with audiences (one of the exceptions being his role in the 1996 comedy Kingpin), he received much critical acclaim for Wes Anderson's Rushmore for which he won Best Supporting Actor awards from the New York Film Critics Circle, National Society of Film Critics, and the Los Angeles Film Critics Association (tying with Billy Bob Thornton). Murray then experienced a resurgence in his career as a dramatic actor, taking on roles in Wild Things, Cradle Will Rock, Hamlet (as Polonius), and The Royal Tenenbaums.

In 2003, he garnered considerable acclaim for Sofia Coppola's Lost in Translation, and went on to earn a Golden Globe Award, a BAFTA Award, and an Independent Spirit Award, as well as Best Actor awards from a number of film critic organizations. He was considered the favorite to win the Academy Award for Best Actor, although Sean Penn ultimately won the award for his performance in Mystic River. In an interview included on the Lost in Translation DVD, Murray states that this is his favorite movie in which he has appeared. Also in 2003, he appeared in a short cameo for the movie Coffee and Cigarettes, in which he played himself "hiding out" in a local coffee shop.

During this time, Murray still appeared in comedic roles such as Charlie's Angels and Osmosis Jones. In 2004, he provided the voice of Garfield in The Movie, and again in 2006 for A Tail of Two Kitties . In 2004, he made his third collaboration with Wes Anderson in The Life Aquatic with Steve Zissou. His dramatic role in Jim Jarmusch's Broken Flowers was also well received.

In 2005, Murray announced that he would take a break from acting, as he had not had the time to relax since his new breakthrough in the late 1990s. He did return to the big screen, however, for brief cameos in Wes Anderson's The Darjeeling Limited and in Get Smart as Agent 13, the agent in the tree. In 2008, he played an important role in the post-apocalyptic film City of Ember, and in 2009, played himself in a cameo role in the zombie comedy Zombieland.

Murray provided the voice for the character Mr. Badger for the 2009 animated film Fantastic Mr. Fox. Though there was speculation that he might return to the Ghostbusters franchise for the rumored Ghostbusters 3, he dispelled such speculation in a recent interview with GQ. In the interview, when asked "Is the third Ghostbusters movie happening? What's the story with that?", Bill Murray replied, "It's all a bunch of crock."

Murray is an avid golfer who often plays in celebrity tournaments. His 1999 book Cinderella Story: My Life in Golf, part autobiography and part essay, expounds on his love of golf. In 2002, he and his brothers starred in the Comedy Central series, The Sweet Spot, which chronicled their adventures playing golf. Caddyshack, one of Murray's earliest film roles, has him playing grounds-keeper Carl Spackler who also has a talent for golfing. The title of his book is derived from a scene he played in Caddyshack, narrating his own golf fantasy (which was listed as #92 on AFI's 100 Years...100 Movie Quotes list).

In 2007, Murray attended a golf tournament in Sweden. After the tournament, Murray was pulled over by the Stockholm police for suspicion of driving a golf cart while intoxicated.

In Space Jam, Bill Murray plays himself and plays upon his love for golf. In 2009, Murray was playing with Hal Sutton, Jeff Sluman and Fred Paglia, when an errant tee shot of his struck a bystander in the head. Murray didn't finish out the round, shaken by the incident. "I wasn't sure I was in bounds or not," Murray said in an AP report, "and I saw this NBC golf cart coming at me and he said, ‘I hate to be the one to tell you this but you hit a lady. She's down on the ground.' That is, you know, sobering."

He is a partner with his brothers in Murray Bros. Caddy Shack, a restaurant chain located near St. Augustine.

He is a part-owner of the St. Paul Saints independent minor-league baseball team and occasionally travels to Saint Paul, Minnesota to watch the team's games. He also owns part of the Charleston RiverDogs, Hudson Valley Renegades, and the Brockton Rox. He invested in a number of other minor league teams in the past, including the Utica Blue Sox, Fort Myers Miracle, Salt Lake Sting (APSL) and Salt Lake City Trappers. He was also a part-owner of the Auburn Astros (now the Auburn Doubledays) in Auburn, New York.

Being very detached from the Hollywood scene, Murray does not have an agent or manager and reportedly only fields offers for scripts and roles using a personal telephone number with a voice mailbox that he checks infrequently. This practice has the downside of sometimes preventing him from taking parts that he had auditioned for and was interested in, such as that of Sulley in Monsters, Inc., Bernard Berkman in The Squid and the Whale, Frank Ginsburg in Little Miss Sunshine and Willy Wonka in Charlie and the Chocolate Factory. He also regretted losing the chance to play Eddie Valiant in Who Framed Roger Rabbit when he heard that he was considered for the role, which he says he would have definitely accepted.

During the filming of Stripes, Murray married Margaret Kelly on Super Bowl Sunday in Las Vegas on January 25, 1981. Later, they re-married in Chicago for their families. Margaret gave birth to two sons, Homer (born 1982) and Luke (born 1985). In August 2009, Luke became a graduate assistant with the basketball team at the University of Arizona, and after one season at Arizona was hired as a full assistant at Wagner College on April 30, 2010. Following Murray's affair with Jennifer Butler, the couple divorced in 1996. In 1997, he married Butler. Together, they have four sons: Caleb (born January 11, 1993), Jackson (born October 6, 1995), Cooper (born January 27, 1997), and Lincoln (born May 30, 2001). Butler filed for divorce on May 12, 2008, accusing Murray of domestic violence. Their divorce was finalized on June 13, 2008.

Murray has homes in Los Angeles, Martha's Vineyard, Massachusetts, Charleston, South Carolina, and Rockland County, New York, just outside of New York City.

During the 2000 presidential campaign, Murray supported Green Party candidate Ralph Nader.

Murray is a huge fan of Chicago pro sports teams, especially the Chicago Cubs, Chicago Bears, and the Chicago Bulls. (He was once a guest color commentator for a Cubs game during the 80s.) He also is a Michael Jordan fan and has made cameo appearances in Space Jam and Jordan documentaries. Murray is an avid Quinnipiac University basketball fan, where his son served as head of basketball operations. Murray is a regular fixture at home games. He cheered courtside for the Illinois Fighting Illini's game against the University of North Carolina in the NCAA Basketball Tournament's championship game in 2005. He is a fixture at home games of those teams when in his native Chicago. After traveling to Florida during the Cubs playoff run to help "inspire" the team (Murray told Cubs slugger Aramis Ramírez he was very ill and needed two home runs to give him the hope to live), he was invited to the champagne party in the Cubs' clubhouse when the team clinched the NL Central in late September 2007, along with fellow actors John Cusack, Bernie Mac, James Belushi, and former Cubs legend Ron Santo. Murray appeared in Santo's documentary, This Old Cub.

As a Chicago native, Murray appeared at the 50th annual Chicago Air & Water Show in August 2008. He performed a tandem jump with the U.S. Army Parachute Team Golden Knights. He was the M.C. for Eric Clapton's Crossroads Guitar Festival on July 28, 2007, where he dressed in various guises of Clapton as he appeared through the years. He was emcee again in 2010.