Gray was born in Providence, Rhode Island, to Rockwell Gray, Sr., the treasurer of Brown & Sharpe, and Margaret Elizabeth “Betty” Horton, a homemaker. He was the middle-born of three sons: Rockwell, Jr., Spalding, and Channing. He was raised in the Christian Scientist faith and grew up in Barrington, Rhode Island, spending summers at his grandmother’s house in Newport, Rhode Island. After graduating from Fryeburg Academy in Fryeburg, Maine, he enrolled at Emerson College in Boston, Massachusetts, as a poetry major, where he earned a Bachelor of Arts degree in 1963. In 1965, Gray moved to San Francisco, California, and became a speaker and teacher of poetry at the Esalen Institute. In 1967, while Gray was vacationing in Mexico City, his mother committed suicide at age 52. After his mother’s death, Gray moved away from the West Coast and permanently settled in New York City. Gray’s books Impossible Vacation and Sex and Death to the Age 14 are largely based on his childhood and early adulthood. He began his theater career in New York in late 1960s. In 1970, he joined Richard Schechner’s experimental troupe, The Performance Group. With actors from The Performance Group, including Willem Dafoe and Elizabeth LeCompte, Gray helped to co-found the theater company The Wooster Group from 1975 to 1980 before leaving the company to focus on his own monologue work. (During this time, he also appeared on the side in three adult films, with Farmer’s Daughters (1976) apparently his only featured role.)

Gray first achieved prominence in the United States with his monologue Swimming to Cambodia, which he wrote in 1985 and was adapted into a film in 1987. This work was based particularly on his experience in a small role in the 1984 film The Killing Fields, which was filmed principally in Thailand. For his monologue, he was awarded a Guggenheim Fellowship and the National Book Award in 1985. He continued to produce monologues until his death. Up through 1993, these works often incorporated his relationship to his girlfriend who eventually became his wife and collaborator, Renée Shafransky. His success with his monologues led to various supporting movie roles, and he also played the lead role of the Stage Manager in a high-profile revival of Thornton Wilder’s play Our Town by the Lincoln Center Theater in 1988. In 1992, Gray published his only novel, Impossible Vacation. The novel is strongly based upon Gray’s own life experiences, including his Christian Scientist[clarification needed] upbringing, his WASP background, and his mother’s suicide. True to form, Gray wrote a monologue about his experiences with the book entitled Monster in a Box.

In June 2001, he suffered severe injuries in a car crash while on vacation in Ireland. In the crash, Gray, who battled depression and bipolar tendencies, suffered a broken hip, leaving his right leg almost immobilized, and a fracture in his skull that left a jagged scar on his forehead, leaving him with depression and a brain injury. During surgery in which a titanium plate was placed over the break in his skull, surgeons removed dozens of bone fragments from his frontal cortex. Suffering both from physical impairment and ongoing depression, he spent months experimenting with a variety of different therapies. Among those from whom Gray sought treatment was Oliver Sacks, a neurologist. Sacks began treating Gray in August 2003 and continued to do so until almost the time of Gray’s death. Sacks proposed that Gray perceived the taking of his own life as part of what he had to say: “On several occasions he talked about what he called ‘a creative suicide.’ On one occasion, when he was being interviewed, he thought that the interview might be culminated with a ‘dramatic and creative suicide.'” Sacks added, “I was at pains to say that he would be much more creative alive than dead.” On January 9, 2004, Gray undertook his final interview, the subject of which was Ron Vawter, a deceased friend and colleague whom Gray had met in the winter of 1972–73. Gray and Vawter had worked closely together throughout the 1970s, first with The Performance Group (founded by Richard Schechner), then as core members of The Wooster Group (founded by Gray and Elizabeth LeCompte). The edited transcript of “Spalding Gray’s Last Interview” was published by the New England Theatre Journal.

On January 11, 2004, Gray was declared missing. The night before his disappearance, he had seen Tim Burton’s film Big Fish, which ends with the line, “A man tells a story over and over so many times he becomes the story. In that way, he is immortal”. Gray’s widow, Kathie Russo, has said, “You know, Spalding cried after he saw that movie. I just think it gave him permission. I think it gave him permission to die.” When Gray first disappeared, his profile was featured on the Fox Network television show America’s Most Wanted. On March 7, 2004, the Office of Chief Medical Examiner of the City of New York reported that Gray’s body was discovered by two men and pulled from the East River. One of the men gave an interview providing details of the accidental discovery. It is believed that Gray jumped off the side of the Staten Island Ferry. In light of a suicide attempt in 2002, and that his mother had killed herself in 1967, suicide was suspected. It was reported that Gray was working on a new monologue at the time of his death, and that the subject matter of the piece—the Ireland car crash and his subsequent attempts to recover from his injuries—might have triggered a final bout of depression. Gray was buried at Oakland Cemetery in Sag Harbor, New York. He was survived by his wife Kathie Russo, stepdaughter Marissa, sons Forrest Dylan Gray and Theo Spalding Gray, and brothers Channing and Rockwell Gray.