Anaya learned to speak English only when he started school. As a teen, he broke his back, and his recovery from that experience affected his worldview. He graduated from the University of New Mexico (B.A., 1963; M.A., 1968; M.A., 1972) and worked as a public school teacher in Albuquerque (1963–70) before becoming director of counseling at the University of Albuquerque. From 1974 to 1993 he taught at the University of New Mexico.

Bless Me, Ultima (1972), Anaya's acclaimed first novel, concerns a young boy growing up in New Mexico in the late 1940s and an elderly healer who changes his life. Heart of Aztlán (1976) follows a family's move from rural to urban surroundings and confronts some of the problems of Chicano labourers. In Tortuga (1979) Anaya examines the emotions of a boy encased in a body cast at a hospital for paralyzed children (reflecting experiences that were Anaya's as a child). These three novels make up a trilogy about Hispanic children in the United States. The novel The Legend of La Llorona (1984) is about La Malinche, an Indian slave who became the mistress, guide, and interpreter of the conquistador Hernán Cortés. Anaya's other works include The Adventures of Juan Chicaspatas (1985) and Alburquerque (1992; the title gives the original spelling of the city's name). His series of mystery novels featuring Chicano private investigator Sonny Baca includes Zia Summer (1995), Rio Grande Fall (1996), Shaman Winter (1999), and Jemez Spring (2005). In addition to fiction, he wrote A Chicano in China (1986), a nonfiction account of his travels; short stories, such as those in Serafina's Stories (2004) and The Man Who Could Fly and Other Stories (2006); and a number of children's books, as well as plays and poems. An advocate of multiculturalism and bilingualism, he translated, edited, and contributed to numerous anthologies of Hispanic writing. In 2002 he was awarded a National Medal of Arts.