Dazai was born Shūji Tsushima (津島修治, Tsushima Shūji?), the eighth surviving child of a wealthy landowner in Kanagi, a remote corner of Japan at the northern tip of Tōhoku in Aomori Prefecture. His father was a member of the House of Peers and was thus often away from home, and his mother was chronically ill after having given birth to 11 children, so he was brought up mostly by the servants.

Shūji was sent to Aomori Prefectural Aomori High School and Hirosaki for higher school. An excellent student and an able writer even then, he edited student publications and contributed some of his own works. His life only started to change when his idol writer Ryūnosuke Akutagawa committed suicide in 1927. Shūji started to neglect his studies, spending his allowance on clothes, alcohol and prostitutes and dabbling with Marxism, at the time heavily suppressed by the government. He frequently expressed guilt in his earliest writing about having been born into the incorrect social class. On 10 December 1929, the night before year-end exams that he had no hopes of passing, Shūji attempted to commit suicide by taking an overdose of sleeping pills, but he survived and managed to graduate the following year.

Shūji enrolled in the French Literature Department of the Tokyo Imperial University and promptly stopped studying again. In October, he ran away with geisha Hatsuyo Oyama (小山初代 Oyama Hatsuyo) and was formally expelled from his family. Nine days after the expulsion, Shūji attempted suicide by drowning off a beach in Kamakura with another woman (whom he barely knew), 19-year-old bar hostess Shimeko Tanabe (田辺シメ子 Tanabe Shimeko). Shimeko died, but Shūji lived, having been rescued by a fishing boat, leaving him with a strong sense of guilt. Shocked by the events, Shūji's family intervened to drop a police investigation, his allowance was reinstated and in December Shūji and Hatsuyo were married.

This moderately happy state of affairs did not last long, as Shūji was arrested for his involvement with the banned Communist Party of Japan and, upon learning this, his elder brother Bunji promptly cut off his allowance again. Shūji went into hiding, but Bunji managed to get word to him that charges would be dropped and the allowance reinstated yet again if he solemnly promised to graduate and swear off any involvement with the party, and Shūji took up the offer.

In what was probably a surprise to all parties concerned, Shūji kept his promise and managed to settle down a bit. He managed to obtain the assistance of established writer Masuji Ibuse, whose connections enabled him to get his works published, and who helped establish his reputation.

The next few years were productive, Shūji wrote at a feverish pace and used the pen name "Osamu Dazai" for the first time in a short story called Ressha (列車 Train 1933): his first experiment with the first-person autobiographical style that later became his trademark. But in 1935, it started to become clear that Dazai could not graduate, and he failed to obtain a job at a Tokyo newspaper as well. He finished The Final Years, intended to be his farewell to the world, and tried to hang himself on 19 March 1935 - failing yet again.

Worse was yet to come, as less than three weeks after his third suicide attempt Dazai developed acute appendicitis and was hospitalized, during which time he become addicted to Pabinal, a morphine-based painkiller. After fighting the addiction for a year, in October 1936 he was taken to a mental institution, locked in a room and forced to quit cold turkey. The "treatment" lasted over a month, during which time Dazai's wife Hatsuyo committed adultery with his best friend Zenshirō Kodate. This eventually came to light and Dazai attempted to commit double suicide with his wife. They both took sleeping pills, but neither one died, so he divorced her. He quickly remarried, this time to a middle school teacher named Michiko Ishihara (石原美知子 Ishihara Michiko). Their first daughter, Sonoko (園子), was born in June 1941.

In the 1930s and 1940s, Dazai wrote a number of subtle novels and short stories that are frequently autobiographical in nature. His first story, Gyofukuki (魚服記 1933), is a grim fantasy involving suicide. Other stories written during this period include Dōke no hana (The Flowers of Buffoonery, 1935), Gyakkō (逆行 Against the Current, 1935), Kyōgen no kami (狂言の神 The God of Farce, 1936), and those published in his 1936 collection Bannen (Declining Years), which describe his sense of personal isolation and his debauchery.

Japan entered the Pacific War in December, but Dazai was excused from the draft because of his chronic chest problems (he was diagnosed with tuberculosis). The censors became more reluctant to accept Dazai's offbeat work, but he managed to publish quite a bit anyway, remaining one of the very few authors who managed to turn out interesting material in those years.[citation needed] A number of the stories, which Dazai published during World War II were retellings of stories by Ihara Saikaku (1642-1693). Other works include: Wartime works included Udaijin Sanetomo (Minister of the Right Sanetomo, 1943), Tsugaru (1944), Pandora no hako (Pandora's Box, 1945-46), and the delightful Otogizōshi (Fairy Tales, 1945) in which he retold a number of old Japanese fairy tales with vividness and wit.

His house was burned down twice in the American air raids against Tokyo, but Dazai's family escaped unscathed, with a son, Masaki (正樹), born in 1944. His third child, daughter Satoko (里子), who later became famous writer Yuko Tsushima (津島佑子), was born in May 1947.