Born near Sharpsburg, Kentucky, he received a classical education from private tutors and studied law; he was admitted to the bar in Mount Sterling, Kentucky in 1832. He moved to Crawfordsville, Indiana in 1834 and was a lawyer and banker there. Active in Whig politics, he was a member of the Indiana Senate in 1837, a member of the Indiana House of Representatives in 1838-1839, and was elected to the U.S. House of Representatives to fill the vacancy caused by the resignation of Tilghman A. Howard, serving from 1840 to 1843.

Lane served in the Mexican War at the head of a company he had raised, and rose to lieutenant colonel of the First Indiana Regiment. He abandoned the profession of law and engaged in the banking business at Crawfordsville in 1854. At the Republican National Convention of 1856 he presided, and gained national recognition for his oratory; in 1860 he was influential in helping Abraham Lincoln win the presidential nomination. He headed his party's ticket in Indiana, and was elected Governor; he was inaugurated January 14, 1861. However, he served just two days, and resigned to accept a seat in the U.S. Senate to honor an agreement with running mate Oliver Hazard Perry Morton, who then became governor. Elected by the Republican-controlled Indiana Legislature, the Democratic-dominated U.S. Senate refused to seat him. However, he served from March 4, 1861, to March 3, 1867. While in the Senate he was chairman of the Committee on Engrossed Bills (Thirty-seventh through Thirty-ninth Congresses) and a member of the Committee on Pensions (Thirty-ninth Congress). He served as special Indian commissioner from 1869 to 1871, and was commissioner for improvement of the Mississippi River.

Lane died in Crawfordsville and is buried there in Oak Hill Cemetery.