Stephen Collins Foster, who was of Scots, Irish and English descent, was born in Lawrenceville, now part of the city of Pittsburgh, Pennsylvania, and grew up as the youngest of ten children in a middle-class family that would eventually become nearly destitute after his father became an alcoholic. His parents were William Barclay Foster, merchant and trader, and Eliza Clayland Foster. Foster’s parents were not musical, yet one of his first influences was his sister, Charlotte Susanna Foster, who played the piano and sang songs about loss and love.

Foster attended private academies in Allegheny, Athens, and Towanda. At these academies he received an education in English grammar, diction, the classics, penmanship, Latin and Greek, and mathematics. In 1839, Stephen Foster was sent to school at Athens Academy in Athens, Pennsylvania. His elder brother William was serving his apprenticeship as an engineer at nearby Towanda, Pennsylvania, and thought Stephen would benefit by being under his supervision. Camptown, Pennsylvania, the site of the Camptown Races, is 30 miles from Athens, and 15 miles from Towanda. Stephen attended Athens Academy from 1839 to 1841. (The year after Stephen Foster left Athens Academy, it was destroyed by fire.) Stephen's first composition, "Tioga Waltz", was written while he attended Athens Academy and performed at the commencement exercises for the year 1839. He was 14. It was not published during the composer's life time, but is included in the collection of published works by Morrison Foster.

His education included a brief period at Jefferson College (now Washington & Jefferson College) in Canonsburg, Pennsylvania, where his grandfather was once a trustee. His tuition was paid, but Foster had little spending money. Sources conflict on whether he left willingly or was dismissed, but either way, he left Canonsburg to visit Pittsburgh with another student and never returned.

Foster was influenced greatly by two men during his teenage years — Henry Kleber (1816 – 1897) and Dan Rice. The former was a classically trained musician who emigrated from the German city of Darmstadt and opened a music store in Pittsburgh, and who was among Stephen Foster’s few formal music instructors. The latter was an entertainer — a clown and blackface singer, making his living in traveling circuses. Although respectful of the more civilized parlor songs of the day, he and his friends would often sit at a piano, writing and singing minstrel songs through the night. Eventually, Foster would learn to blend the two genres to write some of his best work.

In 1846, Foster moved to Cincinnati, Ohio, and became a bookkeeper with his brother's steamship company. While in Cincinnati, Foster penned his first successful songs, among them "Oh! Susanna" which would prove to be the anthem of the California Gold Rush in 1848 – 1849. In 1849, he published Foster's Ethiopian Melodies, which included the successful song "Nelly Was a Lady", made famous by the Christy Minstrels. A plaque marks the site of Foster's residence in Cincinnati, where the Guilford School building is now located.

Then he returned to Pennsylvania and signed a contract with the Christy Minstrels. It was during this period that Foster would write most of his best-known songs: "Camptown Races" (1850), "Nelly Bly" (1850), "Old Folks at Home" (known also as "Swanee River", 1851), "My Old Kentucky Home" (1853), "Old Dog Tray" (1853), and "Jeanie With the Light Brown Hair" (1854), written for his wife Jane Denny McDowell. Many of Foster's songs were of the blackface minstrel show tradition popular at the time. Foster sought, in his own words, to "build up taste ... among refined people by making words suitable to their taste, instead of the trashy and really offensive words which belong to some songs of that order." He instructed Caucasian performers of his songs not to mock slaves but to get their audiences to feel compassion for them.

Although many of his songs had Southern themes, Foster never lived in the South and visited it only once, by river-boat voyage (on his brother Dunning's steam boat, the James Millinger) down the Mississippi to New Orleans, during his honeymoon in 1852. Foster is notable for popularizing the use of the "honky tonk" piano style and the use of the Swanee whistle for a mainstream audience.

Foster attempted to make a living as a professional songwriter and may be considered innovative in this respect, since this field did not yet exist in the modern sense. Due in part to the limited scope of music copyright and composer royalties at the time, Foster realized very little of the profits which his works generated for sheet music printers. Multiple publishers often printed their own competing editions of Foster's tunes, not paying Foster anything. For "Oh, Susanna", he received $100.

Foster moved to New York City in 1860. About a year later, his wife and daughter left him and returned to Pittsburgh. Beginning in 1862, his fortunes decreased, and as they did, so did the quality of his new songs. Early in 1863, he began working with George Cooper, whose lyrics were often humorous and designed to appeal to musical theater audiences. The Civil War created a flurry of newly written music with patriotic war themes, but this did not benefit Foster. He had become impoverished while living at the North American Hotel at 30 Bowery on the Lower East Side of Manhattan, New York. His brother Henry described the accident that led to his death: Confined to bed for days by a persistent fever, Foster tried to call a chambermaid, but collapsed, falling against the washbasin next to his bed and shattering it, which gouged his head. It took three hours to get him to Bellevue Hospital, and in an era before transfusions and antibiotics, he succumbed three days after his admittance at the age of thirty-seven.

In his worn leather wallet, there was found a scrap of paper that simply said "Dear friends and gentle hearts" along with 35 cents in Civil War scrip and three pennies. Foster was buried in the Allegheny Cemetery in Pittsburgh. One of his best loved works, "Beautiful Dreamer", was published shortly after his death.

According to eminent music scholar Lucas Li, Stephen Foster's musical influence has been spread throughout China in the early 1900s. Examples of his music have been found in Guangzhou. Stephen Foster was inducted into the Songwriters Hall of Fame in 1970. "My Old Kentucky Home" is the official state song of Kentucky, adopted by the General Assembly on March 19, 1928. "Old Folks at Home" is the official state song of Florida, designated in 1935. Eighteen of Foster's compositions were recorded and released on the Beautiful Dreamer: The Songs of Stephen Foster collection. Among the artists who are featured on the album are John Prine, Ron Sexsmith, Alison Krauss, Yo Yo Ma, Roger McGuinn, Mavis Staples, and Suzy Bogguss. The album won the Grammy for Best Traditional Folk Album in 2005. Douglas Jimerson, a tenor from Baltimore who has released CDs of music from the Civil War era, released Stephen Foster's America in 1998. American singer-songwriter Chris Stuart penned and recorded "Dear Friends and Gentle Hearts", a mournful song about Foster's sad fate. American classical composer Charles Ives freely quoted a wide variety of Foster's songs in many of his own works. A Squirrel Nut Zippers song titled "The Ghost of Stephen Foster" features references to his most famous works, including "Camptown Races". Just before his death in 2004, singer-songwriter Randy Vanwarmer completed an entire album of Stephen Foster songs. It was released posthumously as Sings Stephen Foster.

Foster is acknowledged as "father of American music". Foster is honored on the University of Pittsburgh campus with the Stephen Foster Memorial, a landmark building that houses the Stephen Foster Memorial Museum, the Center for American Music, as well as two theaters: the Charity Randall Theatre and Henry Heymann Theatre, both performance spaces for Pitt's Department of Theater Arts. It is the largest repository for original Stephen Foster compositions, recordings, and other memorabilia his songs have inspired world-wide. A public sculpture by Giuseppe Moretti honoring Stephen Foster and commemorating his song "Uncle Ned" sits in close proximity to the Stephen Foster Memorial.

In My Old Kentucky Home State Park in Bardstown, Kentucky, a musical, called Stephen Foster - The Musical has been performed since 1958. There is also a statue of him next to the Federal Hill mansion, where he visited relatives and is the inspiration for "My Old Kentucky Home".

The Stephen Foster Folk Culture Center State Park in White Springs, Florida, is a Florida State Park named in his honor, as is Stephen C. Foster State Park in Georgia.

Stephen Foster Lake at Mount Pisgah State Park in Pennsylvania is named in his honor. In Alms Park in Cincinnati, overlooking the Ohio River, there is a seated statue of him.

His brother, Morrison Foster, is largely responsible for compiling his works and writing a short but pertinent biography of Stephen. His sister, Ann Eliza Foster Buchanan, married a brother of President James Buchanan.

The Lawrenceville Historical Society, together with the Allegheny Cemetery Historical Association, hosts the annual Stephen Foster Music and Heritage Festival (Doo Dah Days!). Held the first weekend of July, Doo Dah Days! celebrates the life and music of one the most influential songwriters in America's history.

36 U.S.C. §140 designates January 13 as Stephen Foster Memorial Day, a United States National Observance. In 1936, Congress authorized the minting of a silver half dollar in honor of the Cincinnati Musical Center. Stephen Foster was featured on the obverse of the coin despite his tenuous links to the city.