Cowley grew up in Pittsburgh, Pennsylvania, where his father William was a homeopathic doctor. He graduated from Peabody High School where his friend Kenneth Burke was also a student. He obtained a B.A. from Harvard University in 1920.
He interrupted his undergraduate studies to join the American Field Service in France during World War I. From the Western Front he reported on the war for The Pittsburgh Gazette (today's Pittsburgh Post-Gazette).
Upon returning to the USA, Cowley married the artist Peggy Baird; they were divorced in 1931. His second wife was Muriel Maurer. Together they had one son, Robert William Cowley, who is an editor and military historian.
As part of the great crowd of creative genius that migrated to Paris, France, and congregated in the Montparnasse, Cowley returned to live in France for three years, where he worked with Ernest Hemingway, F. Scott Fitzgerald and others. For this reason, he is often referred to as being part of America's Lost Generation. His most famous work is his autobiographical Exile's Return, published in 1934, which chronicled the general movement of the Lost Generation out of the United States.
From 1929 through 1944, Cowley was an assistant editor of The New Republic. During this period, he became a radical Marxist and began writing about politics. As with many of his generation, Cowley came under scrutiny by J. Edgar Hoover, head of the FBI.
As an editorial consultant to Viking Press, he pushed for the publication of Jack Kerouac's On the Road. In 1946 Cowley's introduction to Viking's The Portable Faulkner, a collection which he also edited, is generally considered a turning point in Faulkner's reputation in the United States, at a time when many of his early works were in danger of going out of print. Cowley's introduction to Sherwood Anderson's Winesburg, Ohio, written in the early 1960s, is said to have had a similar effect on Anderson's reputation.