He was born between 1388 and 1390 in the town of Cañete (Province of Cuenca, Spain), as the natural son of the Castilian noble don Álvaro Martínez de Luna, copero mayor (the page who poured drinks to a nobleman) of king Henry III of Castile and María Fernández de Jarana, a common woman of great character and beauty.
He was introduced to the court as a page by his uncle Pedro de Luna, archbishop of Toledo, in 1410. Don Pedro de Luna became later the antipope, secluded at Peñíscola. Álvaro soon secured a commanding influence over John II, then a mere boy. During the regency of the King John's uncle Ferdinand, which ended in 1412, he was not allowed to be more than a servant. When, however, Ferdinand was elected king of Aragon, and the regency was assumed by the king's mother, Katherine of Lancaster, daughter of John of Gaunt, the granddaughter of King Peter the Cruel of Castile, Álvaro became a very important person, the so called "contino", or old friend of the king.
The young king regarded him with love and affection which the superstition of later time attributed to witchcraft. As the king was under pressure by greedy and unscrupulous nobles — among whom his cousins, the sons of Ferdinand, commonly known as the Infantes (princes) of Aragon, were perhaps the most dangerous — his reliance on a favorite who had every motive to be loyal to him, is quite intelligible. Álvaro was also a master of all the accomplishments the king admired: a fine horseman, skilful with a lance and a writer of court verse. But beyond his peers, he was a master of intrigue and misrepresentation.
Until he lost the king's protection, he was the central figure of the Castilian history of the time. It was a period of constant conflict conducted by shifting coalitions of the nobles, namely prince Enrique and the king's brother John, later king of Aragon, who under pretence of freeing the king from the undue influence of his favorite, were intent on making a puppet of him for their own ends.
The part which Álvaro de Luna played has been diversely judged. The Encyclopædia Britannica Eleventh Edition recounts that to Juan de Mariana he appears as a mere self-seeking favorite. To others he has seemed to be a loyal servant of the king, who endeavoured to enforce the authority of the crown, which in Castile was the only alternative to anarchy. He fought for his own ends, but his supremacy was perhaps better than the rule of gangs of plundering nobles. His story is, in the main, one of expulsions from the court by victorious factions, and of his return, when his opponents fell out among themselves. Thus in 1427 he was solemnly expelled by a coalition of the nobles, only to be recalled in the following year. In 1431 he endeavoured to employ the restless nobles in a war for the conquest of Granada, then still in Muslim hands. Some successes were gained at the Battle of Higueruela, but in the end he failed. A consistent policy was impossible with a rebellious aristocracy and a king of indolent character.
In 1445 the faction of the nobles allied with Álvaro's main enemies, the Infantes de Aragón (Princes of Aragon), were defeated at the Battle of Olmedo. One of them, Prince Enrique de Trastamara, brother to the queen, died of his wounds, and the favorite, who had been constable of Castile and count of Santesteban since 1423, became Grand Master of the military Order of Santiago by election of the Knights. The queen died under suspicious circumstances, pointing at Don Álvaro as the mastermind. Nevertheless, his power appeared to be thoroughly established. It was, however, based only on the personal affection of the king. The king's second wife, Isabella of Portugal, was soon offended at the immense influence of the constable, and when the murder of the king's accountant Alfonso Pérez de Vivero was suspected to have been on Don Álvaro's orders, she urged her husband to free himself from slavery to his favorite. In 1453 the king succumbed, Álvaro was arrested, tried and condemned to death in a process which was a mere parody of justice, and soon executed by beheading at Valladolid on 2 June, 1453.