Kathleen Raine was born in Ilford, Essex. Her mother was from Scotland and her father was born in Wingate, County Durham. The couple had met as students at Armstrong College in Newcastle upon Tyne. Raine spent part of World War I, 'a few short years', with her Aunty Peggy Black at the manse in Great Bavington, Northumberland. She commented, "I loved everything about it." For her it was an idyllic world and is the declared foundation of all her poetry. Raine always remembered Northumberland as Eden: "In Northumberland I knew myself in my own place; and I never 'adjusted' myself to any other or forgot what I had so briefly but clearly seen and understood and experienced." This period is described in the first book of her autobiography, Farewell Happy Fields (1973). 
Raine noted that poetry was deeply ingrained in the daily lives of her maternal ancestors: "On my mother's side I inherited Scotland's songs and ballads…sung or recited by my mother, aunts and grandmothers, who had learnt it from their mothers and grandmothers… Poetry was the very essence of life." Raine heard and read the Bible daily at home and at school, coming to know much of it by heart. Her father was an English master at County High School in Ilford. He had studied the poetry of Wordsworth for his M.Litt thesis and had a passion for Shakespeare and Raine saw many Shakespearean plays as a child. From her father she gained a love of etymology and the literary aspect of poetry, the counterpart to her immersion in the poetic oral traditions. She wrote that for her poetry was "not something invented but given…Brought up as I was in a household where poets were so regarded it naturally became my ambition to be a poet". She confided her ambition to her father who was sceptical of the plan. "To my father" she wrote "poets belonged to a higher world, to another plane; to say one wished to become a poet was to him something like saying one wished to write the fifth gospel".  Her mother encouraged Raine's poetry from babyhood.
Raine was educated at County High School, Ilford, and then read natural sciences, including botany and zoology, on an Exhibition at Girton College, Cambridge, receiving her master's degree in 1929. While in Cambridge she met Jacob Bronowski, William Empson, Humphrey Jennings and Malcolm Lowry. In later life she was a friend and colleague of the kabbalist author and teacher, Z'ev ben Shimon Halevi.
Raine married Hugh Sykes Davies in 1930. She left Davies for Charles Madge and they had two children together, but their marriage also broke up. She also held an unrequited passion for Gavin Maxwell. The title of Maxwell's most famous book Ring of Bright Water, subsequently made into a film of the same name starring Bill Travers and Virginia McKenna, was taken from a line in Raine's poem "The Marriage of Psyche". The relationship with Maxwell ended in 1956 when Raine lost his pet otter, Mijbil, indirectly causing the animal's death. Raine held herself responsible, not only for losing Mijbil but for a curse she had uttered shortly beforehand, frustrated by Maxwell's homosexuality: "Let Gavin suffer in this place as I am suffering now." Raine blamed herself thereafter for all Maxwell's misfortunes, beginning with Mijbil's death and ending with the cancer from which he died in 1969. From 1939 to 1941, Raine and her children shared a house at 49a Wordsworth Street in Penrith with Janet Adam Smith and Michael Roberts and later lived in Martindale. She was a friend of Winifred Nicholson.
Raine's two children were Anna Hopwell Madge (born 1934) and James Wolf Madge (1936–2006). In 1959, James married Jennifer Alliston, the daughter of Raine's friend, architect and town planner Jane Drew with architect James Alliston. Drew was a direct descendant of the neoplatonist Thomas Taylor whom Raine studied and wrote about. Thus a link was made between Raine and Taylor by the two children of her son's marriage.
At the time of her death, following an accident, Raine lived in London. She died of pneumonia after being knocked over by a reversing car after having posted a letter.