Allen was born in Prince Edward County, Virginia, was educated at Marion College, Missouri, and taught school and practiced law in Mississippi. He served in the Texas Revolution against Mexico as a private and later as captain. He was elected as a member of the Mississippi House of Representatives in 1846, after which he studied law at Harvard University. He later moved to Louisiana and was elected to the Louisiana Legislature in 1853. In 1859, he went to Europe with the intention of taking part in the Italian struggle for independence, but arrived too late. He toured through Europe, the incidents of which are recounted in Travels of a Sugar Planter. He was re-elected to the legislature during his absence, and on returning took a prominent part in the business of that body. He had been a Know Nothing (American Party) in politics but had joined the Democratic Party when Buchanan was nominated for president in 1856.
Allen enlisted as a private in the 4th Louisiana Infantry Regiment but was quickly promoted to Lieutenant Colonel on August 15, 1861. Allen became the regiment's Colonel on March 1, 1862. He was seriously wounded at Shiloh and Baton Rouge. Colonel Allen met Sarah Morgan on November 2, 1862, when he was still unable to walk due to his wounds in both legs at the Battle of Baton Rouge. She described him as a "wee little man" with a "dough face".
In early 1863, while slowly recuperating, Allen served as military judge of Pemberton's Army of Mississippi, at the same time also serving as Major General of the Louisiana Militia. In June 1863, he suffered further injury while escaping a hotel fire at Jackson, Mississippi. He became a Brigadier General on August 19, 1863, and was elected Governor of Louisiana in 1864, losing office when the Confederacy collapsed in 1865.
As governor, Allen secured legislative passage of a law to prevent illegal impressment by Confederate agents. Another law allowed Allen to purchase medicine and to distribute it to the needy. Disabled soldiers were provided with $11 per month. Allen procured the establishment of new hospitals both with public funds and private contributions. Recognizing the lack of manufacturing industry in Louisiana he established a system of state stores, foundries, and factories with the goal this new works would be put to civilian production after the war. Because the lack of medicine was acute in the Confederacy he devoted extensive time and resources toward establishing a large intelligence and covert action service which could secretly procure vital supplies especially medicine such as quinine from behind Union lines in New Orleans or from Mexico. Having established the state's military-industrial complex in a short twelve months, state laboratories were soon manufacturing turpentine, castor oil, medicinal alcohol, and carbonate of soda. Allen made arrangement with General Edmund Kirby-Smith to transfer to the state large amounts of cotton and sugar collected by Confederate agents as tax in-kind until the Confederate debt could be retired. He tried to make the state self-sufficient and also guarded the civil liberties of the citizens from infringement by military authorities.
As the Union army forces started flooding into the rest of free Louisiana, Governor Allen was declared an outlaw by military authorities punishable by death upon his capture. Historian John D. Winters writes on Allen's exodus from Louisiana as the war ended to take refuge in Mexico:
"Before leaving he addressed a long letter to the people of Louisiana begging them to keep the peace and 'submit to the inevitable' and 'begin life anew' without whining or despair. The crippled governor then got into his ambulance while a group of friends, tears streaming from their eyes, told him good-by."
In 1865, James Madison Wells, Louisiana's first reconstruction governor, succeeded Allen.
After the war, Allen moved to Mexico City and edited the Mexico Times. He assisted in the opening of trade between Texas and Mexico. He died in Mexico City, of a stomach disorder. His body was buried at Lafayette Cemetery in New Orleans, and later (1885) moved to the grounds in front of the Old Louisiana State Capitol in Baton Rouge.
Allen Parish in western Louisiana is named for him, as is Port Allen, a small city on the west bank of the Mississippi River across from Baton Rouge.
The Henry Watkins Allen Camp #133 of the Sons of Confederate Veterans is named in his honor. The neighborhood in which he lived in while in Shreveport bears the name Allendale. Camp #435, Sons of Confederate Veterans was chartered in 1903 as the Kirby Smith Camp, but the name was changed prior to 1935 to the Henry Watkins Allen Camp #435 in honor of Shreveport's famous resident. The camp is no longer in existence.
Henry W. Allen Elementary School, a public school in New Orleans, is named for him.
A statue of Allen by famed sculptor Angela Gregory is located near the West Baton Rouge Parish Courthouse in Port Allen, which was named for him. A maquette of this statue can be seen on display at the West Baton Rouge Museum.
A bust of Allen, along with Lee, Jackson and Beauregard is located on the confederate memorial in front of the Caddo Parish Courthouse in Shreveport.