His hometown was Columbus, Ohio. He graduated from Yale University, where he became a brother to the Delta Kappa Epsilon fraternity (Phi chapter), in 1916 and served in the naval reserves in World War I.
After the war he started to write, and found success with A Parody Outline of History, a satire of The Outline of History (1920) by H. G. Wells. This led him to becoming a member of the Algonquin Round Table. Around that time a friend of his got him interested in theater and he became a playwright on Broadway in the 1920s. He was friends with Dorothy Parker, Robert Benchley, George S. Kaufman, and Ernest Hemingway, who partly based the character of Bill Gorton in The Sun Also Rises on Stewart. In 1924, he wrote Mr. and Mrs. Haddock Abroad for the publishing house George H. Doran. It was a send up of the ugly American tourist.
He became interested in adapting some of his plays to film, but on first entering Hollywood he had to adapt the plays of others as his own were initially shelved. Once there he mostly wrote, but he also had a small part in the film Not So Dumb. By the 1930s he had become known primarily as a screenwriter and won an Academy Award for The Philadelphia Story (1940). As World War II approached, he became a member of the Hollywood Anti-Nazi League, and admitted to being a member of the Communist Party USA at one of its public meetings. During the Second Red Scare Stewart was blacklisted in 1950 and the following year he and his wife, activist and writer Ella Winter (they had married in 1939), emigrated to England. In 1968, he signed the "Writers and Editors War Tax Protest" pledge, vowing to refuse tax payments in protest against the Vietnam War. His 1975 memoir is entitled By a Stroke of Luck.

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