Keane was born in Lincoln, Nebraska, in October 7, 1915, one of 10 children from his father's second marriage. His mother, Alma Christina (Johnson) Keane, was from Denmark; and his father, William Robert Keane, was of Irish descent. Keane grew up near the center of Lincoln and made money by selling shoes. In the early 1930s, he moved to Los Angeles, California, where he attended Los Angeles City College. He moved to Berkeley, California, in the 1940s with his wife, Barbara (née Ingham), and went into real estate; both were real estate brokers.
Their first child, a son, died shortly after birth in the hospital. In 1947, they had a healthy baby girl, Susan Hale Keane. In July 1948, Walter and Barbara bought the stately John J. Cairns House at 2729 Elmwood Avenue, designed by Berkeley architect Walter H. Ratcliff, Jr. In 1948, the Keanes traveled to Europe, living in Heidelberg and later Paris. When they returned to their home in Berkeley, they began an educational toy business called "Susie Keane's Puppeteens", teaching children to speak French through the use of handmade puppets, phonograph records and a book. The "ballroom" of their large home became an assembly line of hand-painted wide-eyed wooden puppets, with various intricately made costumes. The puppets were sold in high-end stores such as Saks Fifth Avenue.
Barbara Keane later became head of her own department in dress design at the University of California, Berkeley. Walter Keane subsequently closed both his real estate firm and the toy company, in order to work full-time on his painting. Their marriage ended in divorce in 1952. At a fairground in 1953, Walter met an artist making charcoal sketches, Margaret (Doris Hawkins) Ulbrich. Margaret married Walter Keane in 1955. They separated on November 1, 1964. During their marriage and for a time afterward, Walter sold his wife's highly stylized "big eyes" paintings as his own, making the couple millions of dollars over the years. Walter Keane married his third wife, Joan Mervin, after his divorce from Margaret in 1965. They had two children in the early 1970s, while living in London. This marriage also ended in divorce.
Keane was 85 when he died on December 27, 2000 in Encinitas, California.
Keane first displayed Margaret's paintings as his own work in 1957, at an outdoor art show being held in Washington Square in Manhattan. The paintings swiftly developed a following. In 1961, The Prescolite Manufacturing Corporation bought Our Children and presented it to the United Nations Children's Fund. It is in the United Nations permanent collection of art. In 1965 Keane was named "one of the most controversial and most successful painters at work today". The artworks were owned by many celebrities and hanging in a number of permanent collections.
Keane was interviewed by LIFE magazine in 1965. He claimed his inspiration for the big-eyed children came when he was in Europe as an art student. "My psyche was scarred in my art student days in Europe, just after World War II, by an ineradicable memory of war-wracked innocents. In their eyes lurk all of mankind's questions and answers. If mankind would look deep into the soul of the very young, he wouldn't need a road map. I wanted other people to know about those eyes, too. I want my paintings to clobber you in the heart and make you yell, 'DO SOMETHING!'". In the same interview, he declared "Nobody could paint eyes like El Greco, and nobody can paint eyes like Walter Keane".
In 1970, Margaret Keane announced on a radio broadcast that she was the real creator of the paintings. The Keanes continued to dispute the origin of the paintings, and after Walter Keane suggested to USA Today that the only reason Margaret claimed she was the painter was because she believed he was dead, she sued him in federal court for slander. At the hearing, the judge ordered both Margaret and Walter to create a big-eyed child painting in the courtroom. Walter declined to paint before the court, citing a sore shoulder, whereas Margaret completed her painting in 53 minutes. After three weeks of trial, a jury awarded Margaret $4 million in damages. A federal appeals court upheld the verdict of defamation in 1990 but overturned the $4 million damage award.
Tim Burton directed and produced the biographical film based on the life of Margaret Keane, Big Eyes. It was released in theaters in December 2014, with Christoph Waltz playing Walter Keane and Amy Adams playing Margaret.