Farrell was born in Chicago, Illinois, to a large Irish-American family which included siblings Earl, Joseph, Helen, John and Mary. In addition, there were several other siblings who died during childbirth, as well as one who died from the great influenza epidemic in 1918. His father was a teamster, and his mother a domestic servant. His parents were too poor to provide for him, and he went to live with his grandparents when he was three years old. Farrell attended Mt. Carmel High School, then known as St. Cyril, with future Egyptologist Richard Anthony Parker. He then later attended the University of Chicago. He began writing when he was 21 years old. A novelist, journalist, and short story writer known for his realistic descriptions of the working class South Side Irish, especially in the novels about the character Studs Lonigan. Farrell based his writing on his own experiences, particularly those that he included in his celebrated "Danny O'Neill Pentology" series of five novels.
Among the writers who acknowledged Farrell as an inspiration was Norman Mailer:
"Mr. Mailer intended to major in aeronautical engineering, but by the time he was a sophomore, he had fallen in love with literature. He spent the summer reading and rereading James T. Farrell's “Studs Lonigan,” John Steinbeck’s “Grapes of Wrath” and John Dos Passos’s “U.S.A.,” and he began, or so he claimed, to set himself a daily quota of 3,000 words of his own, on the theory that this was the way to get bad writing out of his system. By 1941 he was sufficiently purged to win the Story magazine prize for best short story written by an undergraduate."
Farrell was also active in Trotskyist politics and joined the Socialist Workers Party (SWP). He came to agree with Albert Goldman and Felix Morrows' criticism of the SWP and Fourth International management. With Goldman, he ended his participation with the group in 1946 to join the Workers' Party.
Within the Workers' Party, Goldman and Farrell worked closely. In 1948, they developed criticisms of its policies, claiming that the party should endorse the Marshall Plan and also Norman Thomas' presidential candidacy. Having come to believe that only capitalism could defeat Stalinism, they left to join the Socialist Party of America. During the late 1960s, disenchanted with the political "center", while impressed with the SWP's involvement in the Civil Rights and US anti-Vietnam War movements, he reestablished communication with his former comrades of two decades earlier. Farrell attended one or more SWP-sponsored Militant Forum events (probably in NYC), but never rejoined the Trotskyist movement.
Farrell was married three times, to two women. He married his first wife Dorothy Butler in 1931. After divorcing her, in 1941 he married stage actress Hortense Alden, with whom he had two sons, Kevin and John. They divorced in 1955, and later that year he remarried Dorothy Farrell. They separated again in 1958 but remained legally married until his death. She died in 2005.
Studs Terkel, the Chicago-based historian, adopted the name of "Studs" from Farrell's famous character Studs Lonigan.
The Studs Lonigan trilogy was voted number 29 on the Modern Library's list of the 100 best novels of the 20th century.
On the 100th anniversary of Farrell's birth, Norman Mailer was a panelist at the New York Public Library's "James T. Farrell Centenary Celebration" on February 25, 2004 along with Pete Hamill, Arthur M. Schlesinger, Jr. and moderator Donald Yannella. They discussed Farrell's life and legacy.
In 1973, Farrell was awarded the St. Louis Literary Award from the Saint Louis University Library Associates.