Born Farley Earle Granger II in San Jose, California, Granger was acting in theater in Los Angeles, California when he was signed to a film contract by Samuel Goldwyn. He made his debut The North Star (1943) and appeared in The Purple Heart (1944). Goldwyn was unsure how to use Granger, and it would be four years before he was able to make another film.

Goldwyn originally cast him in The Best Years of Our Lives (1946) to play a character with cerebral palsy, but before filming began Goldwyn had second thoughts about the character, and felt that someone suffering war injuries would be more topical. He therefore cast real life World War II veteran Harold Russell in the part intended for Granger.

Two more years passed and Granger later reported that he begged Goldwyn to be released from his contract, only to hear Goldwyn refuse. In 1948 Goldwyn cast him in a supporting role in Enchantment but the film failed to live up to Goldwyn's expectations. He was then approached by Alfred Hitchcock to loan him Granger for his new film. The film, Rope (1948), based partly on the Leopold and Loeb murder case, saw Granger costarring opposite John Dall as two friends who commit a "thrill kill". James Stewart played the part of their mentor. The film was not a box office success; its subject matter was dark, the relationship between Granger and Dall had a homosexual subtext (ironically, as both Granger and Dall were gay), and Hitchcock's gimmick of filming the piece in continuous scenes and in real time produced a result that many critics dismissed as "stagey". Granger received very good reviews however, and the film has achieved a level of appreciation in more recent times, while stopping short of becoming a cult film.

They Live by Night (1949) was Granger's first starring role. Directed by Nicholas Ray and costarring Cathy O'Donnell, it was a film noir romance story, that did well commercially and once again brought Granger strong reviews. During this time Goldwyn attempted to create a romantic couple in the eyes of the movie going public and so paired Granger with Joan Evans in Rosanna McCoy (1949), Edge of Doom and Our Very Own which also featured Ann Blyth (both 1950). He also costarred with O'Donnell in Side Street (1950). These films, with the exception of Edge of Doom, were all fairly successful but did not achieve the result Goldwyn had been hoping for. Once again, he agreed to loan Granger to Alfred Hitchcock.

Strangers on a Train (1951) was a genuine box office hit, the first major success of Granger's career. Once again Hitchcock attempted to reveal the troubled nature that lay beneath the surface of a seemingly upright young man, in this case a professional tennis player, when introduced to a persuasive character. This character, played by Robert Walker, provides a homosexual subtext, one of many similarities to Rope. Walker's character "Bruno" suggests to Guy (Granger) that they "swap" murders, with Bruno murdering Guy's wife and Guy supposed to murder Bruno's father. As each one is a complete stranger to the intended victim, and therefore without a motive, they would thus give each other an alibi.

Granger's subsequent films were box office failures, and he entered into filming Hans Christian Andersen (1952) with misgivings, complaining about the poor quality of the script. Granger spoke out against the film after it was completed and became uncooperative with Goldwyn. The relationship had been uneasy in the past and Granger once again asked to be released from his contract. Goldwyn again refused, and instructed Granger to honor his agreement. Before long Goldwyn realized he had no further interest in Granger or his career, and let him go.

Granger appeared regularly on television during this period but his film career foundered. The Girl in the Red Velvet Swing was his only mainstream success during the 1950s and Granger made no cinematic films during the 1960s. During this time he achieved some success on Broadway, appearing in several productions including The Crucible and The Glass Menagerie. From 1970 until 1974 Granger made a series of Italian language films that did nothing to further his career. In 1980 Granger returned to Broadway and appeared in Ira Levin's successful play Deathtrap.

He has also appeared in the soap operas As the World Turns as Earl Mitchell and ABC's One Life to Live, receiving a Daytime Emmy award for the latter, for his portrayal of Dr. Will Vernon.

Since the 1990s Granger has appeared in several documentaries discussing Hollywood and often specifically Alfred Hitchcock. In 1995 he was one of the people interviewed on camera for The Celluloid Closet discussing the depiction of homosexuality in film, and the use of subtext in various films, including his own. Rope, for example, was based on the story of two gay men, the actors chosen to portray them were both gay, and one of the play's writers Arthur Laurents was also gay, and claimed to have had a "fling" with Granger shortly before the film was made. In his book, Original Story by Arthur Laurents: A Memoir of Broadway and Hollywood (ISBN 1557834679), playwright and screenwriter Laurents states that he had a long-term homosexual relationship with Granger.

In 2001, Granger was due to appear in the 1926 Noël Coward play Semi-Monde. He came to London and completed rehearsals, but withdrew from the production before it opened.

Farley Granger has a star on the Hollywood Walk of Fame for his contribution to television, at 1551 Vine Street.