He was born in New York City, United States, and began learning the saxophone when he was 15 and, by age 16, had begun to tour with a band. He returned to New York and became a session musician. During the Swing Era, his big band was very popular with hits like "Begin the Beguine", "Stardust", and "Frenesi".

Shaw was know for being an innovator in the big band idiom, at the time using unusual instrumentation. His piece "Interlude in B-flat" was one of the earliest examples of what would be later dubbed third stream. He hired Billie Holiday as his band's vocalist, becoming the first white bandleader to hire a full-time black female singer. His band became enormously successful and his playing, dismissed at first, eventually rivaled that of Benny Goodman: Longtime Duke Ellington clarinetist Barney Bigard--himself a talented musician--cited Shaw as his favorite clarinet player.

At the height of his popularity, Shaw reportedly earned US$30,000 per week, a very large amount during the depression.

During World War II he enlisted in the U.S. Navy (along with his entire band) and served with them in the Pacific theater (similar to Glenn Miller's wartime band in Europe). He spent approximately 18 months playing for navy personnel, sometimes as many as four shows a day. He received a medical discharge.

Throughout his musical career, Shaw would take sabbaticals where he would quit the business. He credited his time in the navy as a period of renewed introspection. He began psychoanalysis and began to pursue a writing career. In 1954, Shaw stopped playing the clarinet, citing his own perfectionism, which, he later said, would have killed him. He spent the rest of the 1950s living in Europe. He focused on writing, concentrating on semi-biographical fiction. He wrote The Trouble With Cinderella and was working on The Education of Albie Snow when he died.

For the Marx Brothers' movie, The Big Store Shaw co-wrote the song, "If It's You." He also had a significant role in the Fred Astaire film Second Chorus which featured Shaw and his orchestra playing "Concerto For Clarinet" as Fred Astaire danced.

A self-proclaimed "very difficult man", Shaw was married eight times; it became a national joke to have been "married as many times as Artie Shaw." Among his wives were Jane Cairns, Margaret Allen, Betty Kern (daughter of songwriter Jerome Kern), author Kathleen Winsor, and actresses Ava Gardner, Lana Turner, Doris Dowling and Evelyn Keyes. He had two children.

In 1953, Shaw was brought up before the House Un-American Activities Committee for his liberal activities. The committee was investigating a peace activist organization, the World Peace Congress, which it considered a Communist front.

He was also a precision marksman, at one point ranking 4th in the United States.

In his later years, Shaw lived and wrote in the Newbury Park section of Thousand Oaks, California. In 1981, he organised a new Artie Shaw Band, with clarinetist Dick Johnson as band leader and soloist. Shaw himself would guest conduct from time to time, ending his self-imposed retirement.

In 1994, Artie Shaw's band library and manuscript collection was donated to The University of Arizona. In 2004, he was presented with a lifetime achievement Grammy Award.

Shaw had long suffered from adult onset diabetes and finally died of complications of the disease at age 94.