Lerner was born in New York City on August 31, 1918, the son of Joseph Jay Lerner, the wealthy owner of a chain of dress stores (the Lerner Stores). He was educated at Bedales School, Choate Rosemary Hall, and Harvard. One of Lerner's school friends was John F. Kennedy. Lerner wrote for the Harvard annual musicals and produced radio scripts after college.

In 1942 he was introduced to Austrian composer Frederic Loewe, who needed a lyricist for an out-of-town musical. The Lerner/Loewe collaboration had begun. Their first major hit was Brigadoon (1947), a romantic fantasy set in a mystical Scottish village, directed by Robert Lewis. In 1951 they wrote the less successful Paint Your Wagon. That same year Lerner wrote the Oscar-winning screenplay for An American in Paris. He had also written with Kurt Weill (the stage musical Love Life) and Burton Lane (the movie musical Royal Wedding).

After years of dead ends, Lerner and Loewe unveiled their masterpiece, My Fair Lady, in 1956. Their adaptation of Pygmalion retained George Bernard Shaw's social commentary, and added unusally appropriate songs for the characters of Eliza Doolittle and Henry Higgins, played originally by Julie Andrews and Rex Harrison. My Fair Lady set box-office records in New York and London; the eventual movie version won seven Oscars. Lerner and Loewe's next work was the film musical hit Gigi. Their partnership cracked during the stress of Camelot in 1960, with Loewe resisting Lerner's desire to direct as well as write. Camelot was a hit nonetheless, and became the symbol for President Kennedy's brief administration.

Loewe retired to Palm Springs, California while Lerner went through a series of unsuccessful musicals with such esteemed composers as Andre Previn, Leonard Bernstein and Charles Strouse. At the time of Lerner's death he had been approached to write lyrics for Les Misérables and The Phantom of the Opera. In 1978 he published his autobiography, The Street Where I Live.

Throughout Lerner's career, his lyrics captured a sense of romantic yearning, and included witty references and occasional double entendres. His librettos had smart one-liners but, for the most part, were structurally flawed.

Lerner was a suave, sophisticated gentleman with an addictive personality; for over 20 years he battled an amphetamine addiction, and Lerner would marry eight times (one ex-wife quipped, "Marriage is Alan's way of saying goodbye"). The drugs and divorces cost him much of his money. When he died in 1986, he reportedly owed the IRS over $1,000,000 (USD) in back taxes. Yet the only thing most remember about Lerner are his lyrics, among the most literate and passionate in 20th century popular music.

He died at the age of 77 on June 14, 1986, from lung cancer in Manhattan.