Born to Jacques Canetti and Mathilde née Arditti in Ruse, a city on the Danube in Bulgaria, Elias Canetti was the eldest of three sons in a wealthy Jewish merchant family. His ancestors were Sephardi Jews who had been expelled from Spain in 1492. His paternal ancestors had settled in Ruse from Ottoman Adrianople. The original family name was Cañete, named after a village in Spain. In Ruse, Elias' father and grandfather were successful merchants who operated out of a commercial building, which they had built in 1898. Canetti's mother descended from one of the oldest Sephardi families in Bulgaria, Arditti, who were among the founders of the Ruse Jewish colony in the late 18th century. The Ardittis can be traced back to the 14th century, when they were court physicians and astronomers to the Aragonese royal court of Alfonso IV and Pedro IV. Before settling in Ruse, they had lived in Livorno in the 17th century.

Canetti spent his childhood years, from 1905 to 1911, in Ruse until the family moved to England. In 1912 his father died suddenly, and his mother moved with their children to Vienna in the same year. They lived in Vienna from the time Canetti was aged seven onwards. His mother insisted that he speak German, and taught it to him. By this time Canetti already spoke Ladino (his mother tongue), Bulgarian, English and some French (he studied the latter two in the one year in England). Subsequently the family moved first (from 1916 to 1921) to Zürich and then (until 1924) to Frankfurt, where Canetti graduated from high school.

Canetti went back to Vienna in 1924 in order to study chemistry. However, his primary interests during his years in Vienna became philosophy and literature. Introduced into the literary circles of first-republic-Vienna, he started writing. Politically leaning towards the left, he participated in the July Revolt of 1927. He gained a degree in chemistry from the University of Vienna in 1929, but never worked as a chemist. In 1934 he married Veza Taubner-Calderon (1897—1963) with whom he had a dynamic relationship. She acted as his muse and devoted literary assistant. Canetti however remained open to relationships with other women. In 1938, after the Anschluss of Austria to greater Germany, Canetti moved to London where he became closely involved with the painter Marie-Louise von Motesiczky, who was to remain a close companion for many years to come. His name has also been linked with that of the author Iris Murdoch (see John Bayley's Iris, A Memoir of Iris Murdoch, where there are several references to an author, referred to as "the Dichter", who was a Nobel Laureate and whose works included Die Blendung [English title Auto-da-Fé]). Canetti's wife died in 1963. His second marriage was to Hera Buschor (1933—1988), with whom he had a daughter, Johanna (born 1972).

Despite being a German writer, Canetti settled and stayed in England until the 1970s, receiving British citizenship in 1952. For his last 20 years, Canetti mostly lived in Zürich.

In 1981, Canetti won the Nobel Prize in Literature "for writings marked by a broad outlook, a wealth of ideas and artistic power". He is known chiefly for his celebrated tetralogy of autobiographical memoirs of his childhood and of pre-Anschluss Vienna (Die Gerettete Zunge; Die Fackel im Ohr; Das Augenspiel; and Das Geheimherz der Uhr: Aufzeichnungen), for his modernist novel Auto-da-Fé (Die Blendung), and for Crowds and Power, a study of crowd behaviour as it manifests itself in human activities ranging from mob violence to religious congregations.

He died in Zürich.