Arreola was born in Ciudad Guzmán (then Zapotlán el Grande), in the state of Jalisco. He was the fourth son out of fourteen of Felipe Arreola and Victoria Zúñiga. In 1930, he began working as a bookbinder, which led to a series of other jobs. In 1937, he relocated to Mexico City, where he entered the Theatrical School of Fine Arts (Escuela Teatral de Bellas Artes).He later was found to be related to JOSE ALFREDO ZUNIGA.

In 1941, while working as a professor, he published his first work, Sueño de Navidad ("Dream of birth"). In 1943, while working as a journalist, he published his second work, Hizo el bien mientras vivió ("He did well when he lived"). In 1945, he collaborated with Juan Rulfo and Antonio Alatorre to publish the literary journal Pan.

Shortly afterward, he traveled to Paris at the invitation of Louis Jouvet. During this time, he became acquainted with Jean-Louis Barrault and Pierre Renoir. A year later he returned to Mexico.

In 1948, he worked as an editor for the journal Fondo de Cultura Económica, and obtained a grant from El Colegio de México. His first collection of short stories, Varia invención, was published in 1949. Around 1950, he began collaborating on the anthology Los Presentes, and received a grant from the Rockefeller Foundation.

In 1952, Arreola published Confabulario, widely considered to be his first great work. It was awarded the Jalisco Literary Prize in 1953. The following year, Arreola published La hora de todos. The year after that, he published a revised Confabulario and won the Premio del Festival Dramático from the National Institute of Fine Arts. In 1958, he published Punta de plata, and in 1962, Confabulario total. In 1962, he published The Switchman (El Guardagujas).

In 1963, he received the Xavier Villaurrutia Prize. The same year, he published La feria, a work dense with references to his native Zapotlán, which would be remembered as one of his finest literary accomplishments. The following year, he edited the anthologies Los Presentes and El Unicornio, and became a professor at the National Autonomous University of Mexico.

In 1967, he appeared in the controversial Alejandro Jodorowsky film Fando y Lis, which was eventually banned in Mexico.

In 1969, Arreola was recognized by the José Clemente Orozco Cultural Group of Ciudad Guzmán. In 1971, Confabulario, Palindroma, La feria, and Varia invención were republished as part of a series of his greatest works, Obras de Juan José Arreola. Around 1972, he published Bestiario, a follow-up to 1958's Punta de plata. The following year, he published La palabra educación, and in 1976, Inventario.

In 1979, he received the National Prize in Letters (Premio Nacional en Letras) in Mexico City. In 1989, he was awarded the Jalisco Prize in Letters and in 1992 the Literatura Latinoamericana y del Caribe Juan Rulfo Prize. In 1997, he received the Alfonso Reyes Prize; and in 1998, the Ramón López Velarde Prize. In 1999, on his eightieth birthday, he was named favorite son of Guadalajara, where he died two years later.