Salten was born Siegmund Salzmann in Budapest, Hungary. When he was four weeks old, his family relocated to Vienna, Austria. Many Jews were immigrating into the city during the late 19th century because Vienna had granted full citizenship to Jews during 1867.

When his father became bankrupt, the sixteen years old Salten had to quit school and begin working for an insurance agency. He also began submitting poems and book reviews to journals. He became part of the "Young Vienna" movement (Jung Wien) and soon received work as a full-time art and theater critic for Vienna's press (Wiener Allgemeine Zeitung, Zeit). During 1900 he published his first collection of short stories. During 1901 he initiated Vienna's first, short-lived literary cabaret (Jung-Wiener Theater Zum lieben Augustin).

He was soon publishing, on an average, one book a year, of plays, short stories, novels, travel books, and essay collections. He also wrote for nearly all the major newspapers of Vienna. In 1906 Salten went to Ullstein as an editor in chief of the B.Z. am Mittag and the Berliner Morgenpost, but relocated to Vienna some months later. He wrote also film scripts and librettos for operettas. During 1927 he became president of the Austrian P.E.N. club as successor of Arthur Schnitzler.

His most famous work is Bambi (1923). It was translated into English during 1928 and became a Book-of-the-Month Club success. During 1933, he sold the film rights to director Sidney Franklin for only $1,000, and Franklin later transferred the rights to the Walt Disney studios. Walt Disney released its movie based on Bambi during 1942.

Life in Austria became perilous for a prominent Jew during the 1930s. Adolf Hitler had Salten's books banned during 1936. Two years later, after Austria had become part of Germany, Salten relocated to Zurich, Switzerland, where he lived until his death and where he died (buried Israelitischer Friedhof Unterer Friesenberg in Zurich).

He was married to the actress Ottilie Metzl (marriage in 1902), and had two children: Paul (b. 1903) and Anna-Katharina (b. 1904). He composed another book based on the character Bambi, titled Bambi's Children: The Story of a Forest Family (1939). His stories "Perri" and "The Hound of Florence" inspired the Disney films Perri (1957) and The Shaggy Dog (1959).

Salten is now considered to be the anonymous author of the erotic novel Josephine Mutzenbacher (1906), the fictional autobiography of a Vienna prostitute.