James Ingram Merrill was born in New York City to Hellen Ingram Merrill and Charles E. Merrill, founding partner of the Merrill Lynch investment firm. He had two older half siblings (a brother and a sister) from his father's first marriage. As a boy, Merrill enjoyed a highly privileged upbringing in economic and educational terms. Merrill's childhood governess taught him French and German, an experience Merrill wrote about in his 1974 poem "Lost in Translation." His parents separated when he was eleven, then divorced when he was thirteen years old. As a teenager, Merrill attended the Lawrenceville School, where he befriended future novelist Frederick Buechner. When Merrill was 16 years old, his father collected his short stories and poems and published them as a surprise under the name Jim's Book. Initially pleased, Merrill would later regard the precocious book as an embarrassment.

Merrill was drafted in 1944 into the United States Army and served for eight months. His studies interrupted by war and military service, Merrill returned to Amherst College in 1945 and graduated in 1947. The Black Swan, a collection of poems Merrill's Amherst professor (and lover) Kimon Friar published privately in Athens, Greece in 1946, was printed in just one hundred copies when Merrill was 20 years old. Merrill's first mature work, The Black Swan is Merrill's scarcest title and considered one of the 20th century's most collectible literary rarities. Merrill's first commercially published volume was First Poems, issued in 990 numbered copies by Alfred A. Knopf in 1951.

The dust jacket for Peter, privately published in 1982, evokes the Merrill Lynch logo.Merrill's partner of more than four decades was David Jackson, also a writer. Merrill and Jackson met in New York City after a performance of Merrill's "The Bait" in 1953. Together, they moved to Stonington, Connecticut in 1955. For two decades, the couple spent part of each year in Athens, Greece. Greek themes, locales, and characters occupy a prominent position in Merrill's writing. In 1979 Merrill and Jackson began spending part of each year at Jackson's home in Key West, Florida. In his 1993 memoir A Different Person, Merrill revealed that he suffered writer's block early in his career and sought psychiatric help to overcome its effects. Merrill painted a candid portrait of gay life in the early 1950s, describing relationships with several men including writer Claude Fredericks, art dealer Robert Isaacson, David Jackson, and his last partner, actor Peter Hooten.

Despite great personal wealth derived from unbreakable trusts made early in his childhood, Merrill lived modestly. A philanthropist, he created the Ingram Merrill Foundation, the name of which united his divorced parents. The private foundation operated during the poet's lifetime and subsidized literature, the arts, and public television. Merrill was close to poet Elizabeth Bishop and filmmaker Maya Deren, giving critical financial assistance to both (while providing money to many other writers, often anonymously). Merrill served as a Chancellor of the Academy of American Poets from 1979 until his death. While vacationing in Arizona, he died on February 6, 1995 from a heart attack related to AIDS.