Benson was born to Ralph Benson, a member of the landed gentry, and Essex (Carolyn) Cholmondeley. Stella's aunt, Mary Cholmondeley, was a novelist. Stella was often ill during her childhood. By her sixth birthday, she and her family, based in London, moved frequently. She spent some of her childhood in Germany and Switzerland getting an education. She began writing a diary at the age of ten and kept it up for all of her life. By the time she was writing poetry, around the age of fourteen, her mother left her father; consequently, she saw her father infrequently. When she did see him, he encouraged her to quit writing poetry for the time being, until she was older and more experienced. Instead, Stella increased her writing output, adding novel-writing to her repertoire. When her father died, Stella learned that he had been an alcoholic.
Stella was noted for being compassionate and interested in social issues. Like her older female relatives, she supported women's suffrage. During World War I, she supported the troops by gardening and by helping poor women in London's East End at The Charity Organisation Society. These efforts inspired Benson to write novels I Pose (1915) and This Is the End (1917).
Benson then decided that she wanted to see the world. Her first stop was California, and she met many artists in San Francisco and Berkeley, including Witter Bynner and Ansel Adams. She took on a job at The University of California as a tutor, then as an editorial reader for The University Press. These experiences inspired her next work, The Poor Man (1922).
Her next travels took her to China, where in 1920 she met the man who would be her husband, James O’Gorman Anderson, who was an Anglo-Irish officer in the Chinese Customs Service (CCS). They married the following year, but Benson was not suited to being a colonial wife; though Anderson took an interest in his wife's writing, but put his own profession first. On the other hand, she truly loved him and stayed married to him for life. Their honeymoon was spent crossing America in a Ford car, and Benson wrote about this in The Little World (1925). They continued to travel throughout the rest of their lives.
Benson's writings kept coming, but her later works are not well known today. Goodbye, Stranger was written in 1926, followed by The Man Who Missed the Bus in 1928 and finally Tobit Transplanted in 1930, which won the Femina Vie Heureuse Prize. These were followed by two collections of short stories, Hope Against Hope (1931) and Christmas Formula (1932).
She died of pneumonia just before her forty-first birthday in December 1933, in the Vietnamese province of Tonkin.