McAloon was born in Durham, England. He trained as a Catholic priest before deciding to commit to a career in music.
Prefab Sprout enjoyed considerable success in the 1980s and early 1990s. They peaked commercially with "The King of Rock 'N' Roll", which was a top ten single in the UK Singles Chart.
Songs written by McAloon have also been recorded by Kylie Minogue ("If You Don't Love Me"), Cher ("The Gunman"), Wendy Matthews ("God Watch Over You" and "Ride"), Sondre Lerche ("Nightingales" - the song appeared in "From Langley Park to Memphis" and Lerche sang it with the Faces Down Quartet as a tribute to Prefab Sprout), Danny Seward ("Home (Where The Heart Is)"), Momus ("Green Isaac Pt. 2"), and various songs for Jimmy Nail. "God Watch Over You" has also been covered by Frances Ruffelle, and "When Love Breaks Down" has been covered by The Zombies, Lisa Stansfield, and Snow Patrol. In 2008, the covers album Independents Day 08 included a version of "Bonny" performed by McAloon's label-mate Tom Smith of Editors.
McAloon released the spoken word/instrumental album I Trawl The Megahertz (UK #167), under his own name, in 2003 on the EMI subsidiary company Liberty Records. After losing his eyesight, now somewhat restored, he listened to CB radio and call-in talk shows and found inspiration for the album. In a 2013 interview, McAloon stated:
That record [I Trawl The Megahertz] was so important to me. I was disappointed—extremely—that the Guardian never even reviewed it. That stayed with me. I kept waiting week after week: "Come on, if you're thinking they don't make records like they used to, if you're looking for personal vision, something unusual—I'm your guy!" But it never came.
In 2006 Prefab Sprout's Steve McQueen album was remastered by Thomas Dolby, and was then released in 2007 as a double-CD package. The second CD featured acoustic versions of songs from the original album that were recorded in 2006.
On 7 September 2009, Prefab Sprout released the album Let's Change the World with Music, based on a demo recording from 1992.
A Prefab Sprout album entitled Crimson/Red was released by Icebreaker Records in October 2013. McAloon is responsible for playing all of the instruments on the album.
On March 3, 2017, McAloon, under the Prefab Sprout name, was shown singing a new song, America, on the Instagram and YouTube channels of Keith Armstrong, his manager and the former boss of Kitchenware Records. Seeming to be a protest song about the administration of President Trump, and released with no accompanying publicity the song was the subject of discussion and speculation.
As of September 2013, McAloon resides in his native County Durham with his wife and three daughters - Georgia, Cecilia, and Grace. He suffers from a detached retina and tinnitus. He dedicated the album Crimson/Red to "my wife and daughters", "the women with whom I'm lucky enough to share my life".