She was born in Badayun, Uttar Pradesh and grew up largely in Jodhpur where her father was a civil servant. She was ninth of ten children (six brothers, four sisters), and since her older sisters got married while Ismat was very young, the better part of her childhood was spent in the company of her brothers, a factor which she admits contributed greatly to the frankness in her nature and writing. Her brother, Mirza Azim Beg Chughtai, already an established writer, when Ismat was still in her teens, was her first teacher and mentor.

In 1936, still working on her bachelor’s degree, she attended the first meeting of the Progressive Writers' Association in Lucknow. After her B.A., Ismat worked for a B.T. (a Bachelor’s in Education), thus becoming the first Indian Muslim woman to have earned both degrees. In this period she started writing in secret on account of violent opposition to her education from her Muslim family.

Ismat Chughtai is considered a path breaker for women writers in the subcontinent, as the many women writing at the time of Ismat's birth and childhood - including, notably, Muhammasdi Begum, Sughra Humayun Mirza, Tyaba Bilgrami (to whose novel Anwari Begum Chughtai refers in Terhi Lakeer), and Khatun Akram, were considered to be too caught up in the ideology of slow, conservative and religiously sanctioned changes for women advocated by such male reformers as Mumtaz Ali, Rashidul Khairi and Shaikh Abdullah. However, in Ismat's formative years, Nazar Sajjad Hyder had established herself an independent feminist voice, and the short stories of two very different women, Hijab Imtiaz Ali and the Progressive Dr Rashid Jehan were also a significant early influence on Ismat. (See Aamer Hussein's article, Forcing Silence to Speak, on early women writers in the AUS online).

During her heyday, a lot of her writings were banned in South Asia due to their reformist and feminist content offending Islamic militants (such as her view that the Niqab, the mask forced on women in Muslim societies, should be discouraged for Muslim women because it is oppressive and feudal). Currently, many of her books are banned in Islamic countries, such as Pakistan and Bangladesh, on the grounds that her writings that advocate for reform in Muslim society are "anti-Muslim"

Ismat Chughtai died in Bombay on October 24, 1991 and was cremated in Chandanwadi crematorium according to her wish.

The Crooked Line is also being published, with a new afterword by the translator Tahira Naqvi, in the United States by the Feminist Press (publication date is July 2006). Naseeruddin Shah's Motley productions has staged three short stories of Ismat Chughtai in their production 'Ismat Aapa ke Naam'.

• Women Writing in India Vol II, edited by Susie Tharu and K. Lalita.
• An Uncivil Woman: Ismat Chughtai - Geeta Patel, The Annual of Urdu Studies. Urdu Studies
• Ismat Chughtai...A Tribute: Tahira Naqvi. [1]
• Ismat Chughtai: An Unexplored Territory
• Ismat Chughtai, Sawnet