Peter Taylor was born 8 January 1917 in Trenton, Tennessee. He enrolled at Vanderbilt University in 1936 and studied literature and creative writing with poets John Crowe Ransom and Allen Tate, then transferred to Southwestern College in Memphis before completing his undergraduate work at Kenyon College in Ohio. It was at Kenyon that Taylor began lifelong friendships with fellow students Robert Lowell and Randall Jarrell.

In 1940 Taylor entered Louisiana State University as a graduate student. There, he studied with both Cleanth Brooks and Robert Penn Warren; however, he only completed two semesters. Warren would later call Taylor one of the twentieth century's "real, and probably enduring, masters of the short story."

Taylor served with the United States Army in England during World War II. After the war, he joined the faculty of Woman's College (now the University of North Carolina at Greensboro). Taylor taught at Woman's College intermittently from 1946 to 1952 and from 1963 to 1967. He also taught at numerous other institutions, including Indiana State (1948-49), the University of Chicago (1952), Kenyon College (1952-57), Ohio State (1957-63), Harvard University (1964) and the University of Virginia (1967-1994), where he headed the creative writing program.

Taylor published short stories in numerous periodicals, including Harper's Bazaar and McCall's, but was best known for his contributions to The New Yorker. He authored seven collections of short stories, the novella A Woman of Means, and many experimental one act plays. His work won many awards, including a Pulitzer Prize in 1967 for his novel A Summons to Memphis.

In 1943 Taylor married Eleanor Ross, a poet and 1940 graduate of the Woman's College. They had two children. Taylor died 2 November, 1994 at the age of 77 in Charlottesville, Virginia.