Houston was born in Louisville, Kentucky and played at Ballard High School in Louisville as they won the 1988 Kentucky state championship. He went on to play at the University of Tennessee (where he played under his coach and father Wade) and graduated in 1993 as the school's all-time leading scorer, and is currently second to Chris Lofton at Tennessee for three-point field goals made. Houston is a member of Kappa Alpha Psi fraternity. On March 6, 2011 the University of Tennessee retired Houston's number (20) during halftime ceremonies at a Tennessee-Kentucky game.
Houston was selected in the first round (eleventh overall) by the Detroit Pistons in the 1993 NBA draft, and averaged 8.5 points per game in his rookie year. His average increased to 14.5 and 19.7 points per game in the next two years.
In 1996, after his rookie contract expired, Houston signed as a free agent with the New York Knicks, for whom he played for the next nine seasons. In his first year as a Knick, Houston took the place of John Starks in the starting lineup, with Starks serving as a mentor for him coming off the bench. Houston kept his scoring average at 17 points per game, and helped lead the team to the 1999 NBA Finals. His most famous play came in the decisive Game 5 of the first round of the 1999 Eastern Conference quarterfinals against the Miami Heat. In the fourth quarter, with the Knicks inbounding the ball trailing by one point, Houston caught the inbounds pass, and made a running jumper in the lane with 0.8 second left on the clock to win the game and the series for the Knicks, 78-77, which was then only the second time in NBA playoffs history where a #8 seed had defeated a #1. The Knicks would go on to the NBA Finals. He was a member of the USA men's national basketball team that won the basketball tournament and gold medal along with 11 other NBA players at the 2000 Summer Olympics in Sydney, Australia. Houston also made the All-Star team in 2000 and 2001.
In April 2001, Houston and teammate Charlie Ward were quoted in a New York Times Magazine article making comments that were deemed anti-Semitic by the Anti-Defamation League and the Knicks. After Ward had called Jews stubborn and persecutors of Christians, Houston cited a biblical verse in support of Ward's comments.
During his career, Houston was known for his three-point shooting prowess. Despite the on-court accolades, though, Houston's lasting legacy may be something that happened off the court: In 2001, Houston signed a maximum contract extension with the Knicks. Houston's yearly salary of over $20 million made him virtually untradeable and injury problems would burden the Knicks. Houston missed 32 games in 2003-04 due to a knee injury, and despite claims in the summer of 2004 that he would be ready to play the next season (he even refused to have surgery on his knee that summer), he played in only 20 games that season because his injury hadn't completely healed. The knee injury would eventually force Houston to announce his retirement, on October 17, 2005.
On March 30, 2007, while waiting for his current contract to expire with the Knicks, Houston was reportedly interested in making a comeback. Despite not having played in the league since 2005, Houston was the second highest paid player in the league two years later during the 2006-07 NBA season at $20.7 million. On June 27, it was again reported that Houston was interested in making a comeback. The Knicks signed Houston to a contract, of which terms were not disclosed. On October 8, 2007, it was reported that Houston would join the Knicks in training camp, and that Jared Jeffries, who wore number 20 with the Knicks, would switch to number 1 so that Houston could wear his old number. It was reported later that Houston would not end up wearing no. 20, as the NBA does not allow jersey number changes without prior approval (Jeffries could not give up #20). On October 20, after only spending a week with the Knicks and seeing six minutes of activity in one pre-season game against the Boston Celtics, Houston decided to end his comeback attempt because of bad timing in choosing to join the team so late into preparation for the regular season. Houston's participation in voluntary games for the Phoenix Suns in September 2008 was a harbinger for his return to the NBA. Houston was signed by the Knicks to play in 2008, and wore number 14 during preseason practices in honor of his father. However, he was cut before the end of the preseason, without appearing in a game.
Houston was appointed special assistant to Donnie Walsh who was the general manager and president at the time. Houston is also a friend of president Barack Obama, and hosted fundraisers at his home to raise money for Obama during the 2008 primary and general elections. Houston is also a co-owner of the UNK NBA clothing brand along with his partner and friend David UNK Huie. UNK is an NBA licensed company based out of New York City founded in 1996. On May 22, 2011, Houston delivered the commencement speech at Western Connecticut State University and was conferred an honorary degree.
In 2005, the NBA agreed on a new collective bargaining agreement (CBA). The most striking innovation granted NBA teams a one-time option to release a player without his contract counting against the luxury tax threshold regardless of how long or how rich the contract was. The provision did not negate the player's contract, a team's obligation to pay the player, or the impact on the salary cap; it merely removed the player's salary when computing the luxury tax. This rule benefited teams that were in danger of facing the "luxury tax" penalty, a tax paid on salaries spent above a certain threshold of total team salary. The correct term is "amnesty clause," but because the team with the worst problems was the Knicks, and their worst financial liability was Houston, it was quickly dubbed the "Allan Houston Rule." Ironically, the Knicks chose not to use the exception for Houston, but for forward Jerome Williams instead, since the Knicks correctly predicted Houston would retire due to lingering injuries over his last two seasons. As a result, Houston's contract counted a total of $40 million against the salary cap, but did not count towards the luxury tax due to his medical retirement, and insurance covered most of the team's payments to him.