Smith was born in Inverness on 24 August 1962 to Ann and Donald Smith. Her parents were working-class and she was raised in a council house in Inverness. From 1967 to 1974 she attended St. Joseph's RC Primary school, then went on to Inverness High School, leaving in 1980.
She studied a joint degree in English language and literature at the University of Aberdeen from 1980 to 1985, coming first in her class in 1982 and gaining a top first in Senior Honours English in 1984. She won the University's Bobby Aitken Memorial Prize for poetry in 1984.
From 1985 to 1990 she attended Newnham College, Cambridge studying for a PhD in American and Irish modernism. During her time at Cambridge, she began writing plays and as a result did not complete her doctorate.
In 2009, she donated the short story Last (previously published in the Manchester Review Online) to Oxfam's 'Ox-Tales' project, four collections of UK stories written by 38 authors. Her story was published in the 'Fire' collection.
Ali Smith partnered with the Scottish band Trashcan Sinatras and wrote the lyrics to a song called "Half An Apple", a love song about keeping half an apple spare for a loved one who is gone. The song was released on 5 March 2007, on the album Ballads of the Book.
In 2008 she contributed a short story "Writ" to an anthology supporting Save the Children. The anthology is entitled "The Children's Hours" and was published by Arcadia Books. Foreign editions have been published in Portugal, Italy, China and Korea.
In 2011 she wrote a short memoir for The Observer in their "Once upon a life" series: 'Looking back on her life, writer Ali Smith returns to the moment of conception to weave a poignant and funny memoir of an irreverent father, a weakness for Greek musicals and a fateful border crossing'.
In October 2012, she read a sermon at Manchester Cathedral to guests and students, followed by a book signing.
In 2013, Smith published Artful, a book based on her lectures on European comparative literature delivered the previous year at Saint Anne's College, Oxford. Much more than a work of literary criticism, it is a book about what art can do. Artful was well-received, with one reviewer commenting that, "...her new book, in which she tugs at God's sleeve, ruminates on clowns, shoplifts used books, dabbles in Greek and palavers with the dead, is a stunner."
Ali Smith is also a patron of the Visual Verse online anthology and her piece Untitled, written in response to an image by artist Rupert Jessop, appears in the November 2014 edition.
On 10 September 2015 Ali Smith was nominated Honorary Fellow by Goldsmiths, University of London.
In 2011 she contributed a short story "Why Holly Berries are as Red as Roses" to an anthology supporting The Woodland Trust. The anthology - Why Willows Weep - has so far helped The Woodland Trust plant approximately 50,000 trees, and is to be re-released in paperback format in 2016.
In July 2016, Smith was awarded an honorary doctorate from the University of East Anglia.
Smith lives in Cambridge with her partner, filmmaker Sarah Wood.