Farrell was born in Chicago, Illinois, to a large Irish-American family which included siblings Earl, Joseph, Helen, John and Mary. In addition, there were several other siblings who died in childbirth, as well as one who died from the influenza epidemic in 1917. Farrell attended Mt. Carmel High School, then known as St. Cyril, with future Egyptologist Richard Anthony Parker. He then later attended the University of Chicago. He began writing when he was 21 years old. A novelist, journalist, and short story writer known for his realistic portraits of the working class South Side Irish, especially in the novels about the character Studs Lonigan. Farrell based his writing on his own experiences.

Among the writers who acknowledged Farrell as an inspiration was Norman Mailer:

"Mr. Mailer intended to major in aeronautical engineering, but by the time he was a sophomore, he had fallen in love with literature. He spent the summer reading and rereading James T. Farrell's “Studs Lonigan,” John Steinbeck’s “Grapes of Wrath” and John Dos Passos’s “U.S.A.,” and he began, or so he claimed, to set himself a daily quota of 3,000 words of his own, on the theory that this was the way to get bad writing out of his system. By 1941 he was sufficiently purged to win the Story magazine prize for best short story written by an undergraduate."

Farrell was also active in Trotskyist politics and joined the Socialist Workers Party (SWP). He came to agree with Albert Goldman and Felix Morrows' criticism of the SWP and Fourth International leaderships. With Goldman, he left the group in 1946 to join the Workers' Party.

Within the Workers' Party, Goldman and Farrell worked closely. In 1948, they developed criticisms of its policies, claiming that the party should support the Marshall Plan and also Norman Thomas' presidential candidacy. Having come to believe that only capitalismcould defeat Stalinism, they left to join the Socialist Party of America. In the late 1960s, disenchanted with the political "center", while impressed with the SWP's involvement in the Civil Rights and US anti-Vietnam War movements, he reestablished contact with his former comrades of two decades earlier. Farrell attended one or more SWP-sponsored Militant Forum events (probably in NYC), but never rejoined the Trotskyist movement.

Farrell was married twice. His first wife was Dorothy Butler. His second wife (from 1941 to 1955 when they divorced) was stage actress Hortense Alden. He and Alden had two sons, Kevin and John.

• On the 100th anniversary of Farrell's birth, Norman Mailer was a panelist at the New York Public Library's "James T. Farrell Centenary Celebration" on February 25, 2004 with Pete Hamill, Norman Mailer, Arthur Schlesinger, Jr. and moderator Donald Yannella. They discussed Farrell's life and legacy.

• Studs Terkel, the Chicago-based historian, adopted the name of "Studs" from Farrell's famous character Studs Lonigan, according to Terkel's obituaries.

• Farrell was an avid baseball fan and well versed in the statistics of the game. During one lecture tour in about 1950, where he lectured at several universities in Missouri and Colorado, he was as apt to tell baseball tales as he was to talk about his fictional works.

• Young Lonigan (1932)
• Gas-House McGinty (1933)
• Calico Shoes (1934)
• The Young Manhood of Studs Lonigan (1934)
• Guillotine Party and Other Stories (1935)
• Judgment Day (1935)
• A Note on Literary Criticism (1936)
• A World I Never Made (1936)
• Can All This Grandeur Perish? and Other Stories (1937)
• No Star Is Lost (1938)
• Tommy Gallagher's Crusade (1939)
• Father and Son (1940)
• The Bill of rights in danger!: the meaning of the Minneapolis convictions [New York] : Civil Rights Defense Committee, (1941)
• Decision (1941)
• Ellen Rogers (1941)
• My Days of Anger (1943)
• Who are the 18 prisoners in the Minneapolis Labor Case?: how the Smith "Gag" Act has endangered workers rights and free speech [New York] : Civil Rights Defense Committee, (1944)
• Bernard Clare (1946)
• Literature and Morality (1947)
• Truth and myth about America New York, N.Y. : Rand School Press : Distributed by the Rand Bookstore (1949)
• The Road Between (1949)
• An American Dream Girl (1950)
• The Name Is Fogarty: Private Papers on Public Matters (1950)
• This Man and This Woman (1951)
• Yet Other Waters (1952)
• The Face of Time (1953)
• Reflections at Fifty and Other Essays (1954)
• French Girls Are Vicious and Other Stories (1955)
• A Dangerous Woman and Other Stories (1957)
• My Baseball Diary (1957)
• It Has Come To Pass (1958)
• Boarding House Blues (1961)
• Side Street and Other Stories (1961)
• The Silence of History (1963)
• What Time Collects (1964)
• A Glass of Milk, in "Why Work Series" editor Gordon Lish (1966)
• Lonely for the Future (1966)
• When Time Was Born (1966)
• New Year's Eve/1929 (1967)
• A Brand New Life (1968)
• Childhood Is Not Forever (1969)
• Invisible Swords (1971)
• Judith and Other Stories (1973)
• The Dunne Family (1976)
• Olive and Mary Anne (1977)
• The Death of Nora Ryan (1978)

Posthumous editions

• Eight Short, Short Stories (1981)
• Sam Holman (1994)
• Hearing Out James T. Farrell: Selected Lectures (1997)
• Studs Lonigan: A Trilogy, ed. Pete Hamill (New York: The Library of America, 2004) ISBN 978-1-93108255-6.
• Dreaming Baseball, eds. Ron Briley, Margaret Davidson, and James Barbour (Kent, Ohio: Kent State University Press, 2007).