Born into a well-known theatrical family, he was educated at Magdalen College, Oxford, and turned from the stage to literature when he was in his late 20s. Mackenzie showed a mastery of cockney humour in Carnival (1912) and Sinister Street (1913–14); a satiric sting in Water on the Brain (1933), attacking the British secret service, which had prosecuted him under the Official Secrets Act for his autobiographical Greek Memories (1932); and a love of pure fun in The Monarch of the Glen (1941) and Whisky Galore (1947). Other novels included Poor Relations (1919), Rich Relatives (1921), Vestal Fire (1927), and Extraordinary Women (1928); among his plays were The Gentleman in Grey (1906), Columbine (1920), and The Lost Cause (1931). The first volume of his memoirs, My Life and Times: Octave One, appeared in 1963, and Octave Ten in 1971.

An ardent Scottish nationalist, Mackenzie lived in Scotland after 1928 and aided in the foundation of the Scottish National Party. He served as rector of Glasgow University (1931–34), as literary critic for the London Daily Mail (1931–35), and as the founder and editor of Gramophone magazine (1923–62). Mackenzie was named Officer of the Order of the British Empire in 1919 and was knighted in 1952.