The first decade of Sterne’s life was spent moving from place to place as his father was reassigned throughout England and Ireland. During this period Sterne never lived in one place for more than a year. Sterne was sent to Hipperholme Grammar School near Halifax when he was ten years old; he never saw his father again. Sterne was admitted to a sizarship at Jesus College, Cambridge, in July 1733 at the age of 20. His great-Grandfather, who was made Archbishop of York in 1664, had been the Master of Jesus College, twice, earlier in the seventeenth century. Sterne graduated with a degree of Bachelor of Arts in January 1737; and returned in the summer of 1740 to be awarded his Master of Arts degree.

Sterne seems to have been destined to become a clergyman, and was ordained as a deacon in March of 1737 and as a priest in August, 1738. Shortly thereafter Sterne was awarded the living at Sutton-on-the-Forest in Yorkshire. Sterne married Elizabeth Lumley in 1741. Both were ill with tuberculosis. In 1743, he was presented to the neighbouring living of Stillington, and did duty both there and at Sutton. He was also a prebendary of York Minster. Sterne’s life at this time was closely tied with his uncle, Dr. Jacques Sterne, the Archdeacon of Cleveland and Precentor of York Minster. Sterne’s uncle was also an ardent Whig, and urged Sterne to begin a career of political journalism which resulted in some scandal for Sterne and, eventually, a terminal falling-out between the two men.

Sterne lived in Sutton for twenty years, during which time he kept up an intimacy which had begun at Cambridge with John Hall-Stevenson, a witty and accomplished bon vivant, owner of Skelton Hall in the Cleveland district of Yorkshire. Without Stevenson, Sterne may have been a more decorous parish priest, but might never have written Tristram Shandy.

It was while living in the country-side, having failed in his attempts to supplement his income as a farmer and struggling with tuberculosis, that Sterne began work on his most famous novel, The Life and Opinions of Tristram Shandy, Gentleman, the first volumes of which were published in 1759. Sterne was at work on his celebrated comic novel during the year that his mother died, his wife was seriously ill, and he was ill himself with TB. The publication of Tristram Shandy made Sterne a man famous in London and on the continent. He was delighted by the attention, and spent part of each year in London, being feted as new volumes appeared. Indeed, Baron Fauconberg rewarded Sterne by appointing him as the perpetual curate of Coxwold, North Yorkshire.

Sterne continued to struggle with his illness, and departed England for France in 1762 in an effort to find a climate that would alleviate his suffering. Sterne was lucky to attach himself to a diplomatic party bound for Turin, as England and France were still adversaries in the Seven Years' War. Sterne was gratified by his reception in France where reports of the genius of Tristram Shandy had made him a celebrity. Aspects of this trip to France were incorporated into Sterne’s second novel, A Sentimental Journey Through France and Italy, which was published at the beginning of 1768. The novel was written during a period in which Sterne was increasingly ill and weak. Less than a month after Sentimental Journey was published, early in 1768, Laurence Sterne's strength failed him, and he died in his lodgings at 41 Old Bond Street on the 18th of March, at the age of 54. He was buried in the churchyard of St. George's, Hanover Square.

In a curiously "Shandean" twist in events, it appears that Sterne's body was stolen shortly after it was interred and sold to the anatomists. It was recognised by somebody who knew him and discreetly reinterred. When the churchyard of St. George's was redeveloped in the 1960s, his skull was disinterred (in a manner befitting somebody who chose for himself the nickname of "Yorick"), partly identified by the fact that it was the only skull of the five in Sterne's grave that bore evidence of having been anatomised, and transferred to Coxwold Churchyard in 1969. The story of the reinterment of Sterne's skull in Coxwold is alluded to in Malcolm Bradbury's novel To The Hermitage.