Born to an American mother and Iranian father in New York City, Bakhtiar grew up in Los Angeles and Washington, D.C., as a Catholic. At the age of 24, moved to Iran with her Iranian husband, an architect, and their three children, where she began to study Islam under her teacher and mentor, Dr. Seyyed Hossein Nasr at Tehran University, studying Quranic Arabic, eventually converting in 1964. She divorced her husband in 1976 and returned to the U.S. in 1988. She holds a BA in History from Chatham College in Pennsylvania, an MA in Philosophy, an MA in Counseling Psychology and a Ph.D. in Educational Foundations. She is also a Nationally Certified Counselor. As of 2007 Bakhtiar lives in Chicago, where she is president of the Institute of Traditional Psychology and Scholar-in Residence at Kazi Publications.
She has translated and written a combination of 25 books about Islam, many dealing with Sufism. She has also authored or co-authored a number of biographical works. Her translation of the Qur'an, first published in 2007 and called The Sublime Quran, is the first translation of the Qur'an into English by an American woman. Laleh Bakhtiar's translation attempts to take a female perspective, and to admit alternative meanings to many Arabic terms that are ambiguous or whose meaning scholars have had to guess because of the antiquity of the language. Her work seeks to create understanding between non-Muslims and Muslims.
In her Quran translation, she translates kāfirūn as "those who are ungrateful" instead of the common translations "unbelievers" or "infidels." She also translates the Arabic word ḍaraba in Chapter 4, Verse 34, concerning treatment of a husband towards a rebellious wife, as "go away" instead of the common "beat" or "hit." The English words "God" and "Mary" are used instead of the Arabic Allāh and Maryam. Bakhtiar believes these translations will not push non-Muslims away from Islam.
Bakhtiar has stopped wearing the headscarf, worn by many Muslim women, after the September 11 attacks, as she came to believe that in America it does not promote its goal of modesty and attracts excessive attention.
Khaled Abou El Fadl, Islamic law professor from UCLA, says she "has a reputation as an editor, not [as] an Islamic scholar", and that three years of Classical Arabic are not enough. He also "is troubled by a method of translating that relies on dictionaries and other English translations."
The head of one of Canada's leading Muslim organizations, Islamic Society of North America (Canada), ISNA, Mohammad Ashraf, said he would not permit Bahktiar's book, The Sublime Quran, to be sold in the bookstore of ISNA because she was not trained at an academic institution accredited in the Muslim world and also said that "this woman-friendly translation will be out of line and will not fly too far" and that "women have been given a very good place in Islam."
Bakhtiar disagrees with such criticism saying, "The criticism is [there] because I'm a woman." She also says that some other well-known translators were not considered Islamic scholars.