A native Californian, Atherton was born in San Francisco and died there, but traveled extensively and lived abroad at times in furtherance of her writing career. She eloped with George H.B. Atherton when she was only 19, and had two children. Her husband discouraged her writing; and the serial publication of her first novel, The Randolphs of Redwoods (1882), though unsigned, scandalized her family.

After her husband's death, in 1887, she was free to pursue her writing career as a protégée of Ambrose Bierce, eventually writing 60 books and numerous articles and short stories. Atherton's first signed novel, What Dreams May Come, was published in 1888 under the pseudonym Frank Lin.

She is best remembered for her "California Series," several novels and short stories dealing with the social history of California. The series includes The Splendid, Idle Forties (1902); The Conqueror (1902), which is a fictionalized biography of Alexander Hamilton; and her sensational, semi-autobiographical novel Black Oxen (1923), about a middle-aged woman who miraculously becomes young again after glandular therapy. The latter was made into a silent movie in 1923.

Her novels often feature strong heroines who pursue independent lives, undoubtedly a reaction to her stifling married life. "The Foghorn," written in 1933, is a psychological horror story that has been compared to The Yellow Wallpaper. Atherton also produced a number of (post-)Gothic stories, some of them, such as "The Bell in the Fog," significant achievements in the Gothic/supernaturalist tradition.