Born to a German mother and Bengali father, Desai grew up speaking German, Hindi, and English. She received a B.A. in English from the University of Delhi in 1957. The suppression and oppression of Indian women were the subjects of her first novel, Cry, the Peacock (1963), and a later novel, Where Shall We Go This Summer? (1975). Fire on the Mountain (1977) was criticized as relying too heavily on imagery at the expense of plot and characterization, but it was praised for its poetic symbolism and use of sounds. Clear Light of Day (1980), considered the author's most successful work, is praised for its highly evocative portrait of two sisters caught in the lassitude of Indian life. Its characters are revealed not only through imagery but through gesture, dialogue, and reflection. As do most of her works, the novel reflects Desai's essentially tragic view of life. Baumgartner's Bombay (1988) explores German and Jewish identity in the context of a chaotic contemporary India.

Other novels by Desai include In Custody (1984; film 1994) and Journey to Ithaca (1995). Fasting, Feasting (1999) takes as its subject the connections and gaps between Indian and American culture, while The Zigzag Way (2004) tells the story of an American academic who travels to Mexico to trace his Cornish ancestry. Desai also wrote short fiction—collections include Games at Twilight, and Other Stories (1978) and Diamond Dust, and Other Stories (2000)—and several children's books, including The Village by the Sea (1982). Her daughter Kiran Desai (Desai, Kiran) won the Booker Prize for the novel The Inheritance of Loss (2006).