Wagner was the fourth and youngest child of Aubrey J. Wagner and Dorothea Huber; his father was an official in the Tennessee Valley Authority. Wagner earned a history degree from Kenyon College in 1967, and a psychiatry degree from University of North Carolina-Chapel Hill. As noted above, he disliked the medical profession, which he abandoned upon establishing himself as a writer.

Wagner was productive as both a writer and editor/anthologist; see below.

Wagner died in 1994, of tick fever compounded by Wagner's longtime alcoholism.

Some of Wagner's work is set in Robert E. Howard's universe (featuring Conan the Barbarian and Bran Mak Morn); he also edited three volumes of Howard's original Conan tales, important to purists for being the first to restore the texts to their originally published form.

Wagner also created his own mystical and pre-historical hero, Kane, whose name and background are based on traditional conceptions of the biblical Cain. A powerful, left-handed man with red hair and eyes which people find it difficult to meet (the Mark of Kane), the character was described by Wagner as one "who could master any situation intellectually, or rip heads off if push came to shove". The Kane stories were classified as tales of sword and sorcery (although Wagner disliked the term), which some critics have favourably compared to those of Howard and Michael Moorcock.

Besides the Kane books, Wagner wrote contemporary horror stories (some of which, like "At First Just Ghostly", also feature Kane). These were collected in the books In a Lonely Place (1983), Why Not You and I? (1987) and the posthumous Exorcisms and Ecstasies (1997). They range from the highly literate and allusive (such as "The River of Night's Dreaming", which refers to Richard O'Brien's The Rocky Horror Show and the myth of Carcosa used in the work of Ambrose Bierce and Robert W. Chambers), to the pulpy and parodic (such as "Plan Ten from Inner Space", a crazed homage to Edward D. Wood, Jr.'s magnum opus Plan 9 from Outer Space). His later stories, such as "But You'll Never Follow Me" and "Silted In", were described by Ramsey Campbell as tormented and deeply personal; some deal explicitly with drug addiction (e.g. "More Sinned Against") and sexual subjects, including repression (e.g. "Brushed Away") and transsexualism (e.g. "Lacunae").

With his friends Jim Groce and David Drake, Wagner formed the Carcosa Press publishing house to preserve the work of their favourite pulp writers in hard covers. Carcosa Press put out four substantial volumes of pulp horror tales, Murgunstrumm and Others by Hugh B. Cave, Far Lands, Other Days by E. Hoffmann Price, Worse Things Waiting and Lonely Vigils, both by Manly Wade Wellman. All books were edited by Wagner and profusely illustrated. Wagner collaborated with Drake on Killer, a science fiction horror novel set during the reign of the Roman emperor Domitian.

The illustrator of Murgunstrumm and Worse Things Waiting was the noted Weird Tales artist Lee Brown Coye. Coye's macabre designs, incorporating mysterious lattices of twigs, were the inspiration for Wagner's British Fantasy Award-winning story "Sticks". In the mid-1980s, "Sticks" received a chilling audio adaptation on the radio series The Cabinet of Dr. Fritz. "The River of Night's Dreaming" was adapted for the TV series The Hunger in 1998.

A connoisseur of rare horror gems, Wagner edited many horror and fantasy anthologies; perhaps his greatest achievement in this area was the annual anthology series The Year's Best Horror Stories (DAW Books), which he edited from volume VIII (1980) until volume XXII (1994). The series was canceled after Wagner's death.

Collections

• In a Lonely Place (1983)
• Why Not You and I? (1987)
• Unthreatened by the Morning Light (chapbook) (1989)
• Exorcisms and Ecstasies (1997)

Novel

• Killer (written with David Drake, 1985)

Short Stories

Kane

• Darkness Weaves (novel) (published in abridged and altered form 1970; restored text 1978)
• Death Angel's Shadow (collection) (1973)
• Bloodstone (novel) (1975)
• Dark Crusade (novel) (1976)
• Night Winds (collection) (1978)
• The Book of Kane (collection) (1985)
• Gods in Darkness (collection of the three novels) (2002)
• Midnight Sun: The Complete Stories of Kane (collection) (2003)

Robert E. Howard pastiches

• Legion from the Shadows (Bran Mak Morn novel) (1976)
• The Road of Kings (Conan novel) (1979)

Collections edited

• Murgunstrumm and Others, by Hugh B. Cave (1977)
• Worse Things Waiting, by Manly Wade Wellman (1973)
• Conan:
• The Hour of the Dragon, by Robert E. Howard (1977)
• The People of the Black Circle, by Robert E. Howard (1977)
• Red Nails, by Robert E. Howard (1977)
• The Year's Best Horror Stories
• The Year's Best Horror Stories, VIII (1980)
• The Year's Best Horror Stories, IX (1981)
• The Year's Best Horror Stories, X (1982)
• The Year's Best Horror Stories, XI (1983)
• The Year's Best Horror Stories, XII (1984)
• The Year's Best Horror Stories, XIII (1985)
• The Year's Best Horror Stories, XIV (1986)
• The Year's Best Horror Stories, XV (1987)
• The Year's Best Horror Stories, XVI (1988)
• The Year's Best Horror Stories, XVII (1989)
• The Year's Best Horror Stories, XVIII (1990)
• The Year's Best Horror Stories, XIX (1991)
• The Year's Best Horror Stories, XX (1992)
• The Year's Best Horror Stories, XXI (1993)
• The Year's Best Horror Stories, XXII (1994)
• Echoes of Valor (Sword and Sorcery Anthologies)
• Echoes of Valor (1987)
• Echoes of Valor II (1989)
• Echoes of Valor III (1991)

Critical

• Black Prometheus: A Critical Study of Karl Edward Wagner, ed. Benjamin Szumskyj (Gothic Press 2007; ISBN 0-913045-14-4)