Hazzard was born in Sydney and attended Queenwood School for Girls in Mosman, but left in 1947 to travel through Southeast Asia with her parents. Her first landing was Hiroshima. Her diplomat father took her to Hong Kong, and then she was "brutally removed by destiny" to New Zealand where her father was Australian Trade Commissioner. Hazzard says of her experience of the East that "I began to feel that people could enjoy life, should enjoy life".

Hazzard's early life "was a carbon copy of Helen Driscoll's" (the heroine of The Great Fire). Helen and her brother, the dying Benedict, are described as "wonderfully well-read, a poetic pair who live in literature." Poetry, she says, has always been the centre of her life.

She travelled to Italy in 1956, and worked for a year in Naples.

In 1963, Hazzard married the writer Francis Steegmuller, who died in 1994. As of 2006, she lives in New York City, frequently travelling to her Italian residence in Capri.

Hazzard is best known as the author of four novels and two collections of short fiction, a body of fiction as distinguished as it is small. Her first book, the story collection Cliffs of Fall, was published in 1963. In 1977 her short story "A Long Story Short", originally published in The New Yorker on 26 July 1976, received an O. Henry Award.

The Transit of Venus, her third novel, won the 1980 National Book Critics Circle Award. Her next novel, The Great Fire, which took her twenty years to write, garnered the 2003 National Book Award and the 2004 Miles Franklin Award. It was also shortlisted for the Orange Prize for Fiction, longlisted for the 2004 Man Booker Prize, and named a 2003 Book of the Year by The Economist. Her second novel, The Bay of Noon, was nominated for the Lost Man Booker Prize.

In addition to her fiction, Hazzard has written two books critical of the United Nations ... Defeat of an Ideal (1973) and Countenance of Truth (1990) ... and an account of her friendship with Graham Greene, Greene on Capri: A Memoir (2000). Her most recent work of nonfiction, The Ancient Shore: Dispatches from Naples (2008) is a collection of Hazzard’s writings on Naples, Italy, co-authored by her late husband, Francis Steegmuller.

In 1984 the Australian Broadcasting Corporation invited Hazzard to give the Boyer Lectures, a series of radio talks delivered each year by a prominent Australian. The talks were published the following year under the title Coming of Age in Australia.

Novels

• The Evening of the Holiday (1966)
• The Bay of Noon (1970) shortlisted for the Lost Man Booker Prize
• The Transit of Venus (1980)
• The Great Fire (2003)

Short story collections

• Cliffs of Fall and Other Stories (1963)
• People in Glass Houses (1967)

Nonfiction

• Defeat of an Ideal: A Study of the Self-destruction of the United Nations (1973)
• Coming of Age in Australia (1985)
• Countenance of Truth: The United Nations and the Waldheim Case (1990)
• Greene on Capri: A Memoir (2000)
• The Ancient Shore: Dispatches from Naples (2008) (with Francis Steegmuller)