Diana was born in London, the daughter of Marjorie (née Jackson) and Richard Aneurin Jones, both of whom were teachers. When war was announced, shortly after her fifth birthday, she was evacuated to Wales, and thereafter moved several times, including periods in Coniston Water, in York, and back in London. In 1943 her family finally settled in Thaxted, Essex, where her parents worked running an educational conference centre. There, Jones and her two younger sisters Isobel (later Professor Isobel Armstrong, the literary critic) and Ursula (later an actress and a children's writer) spent a childhood left chiefly to their own devices. After attending the Friends School Saffron Walden, she studied English at St Anne's College in Oxford, where she attended lectures by both C. S. Lewis and J. R. R. Tolkien before graduating in 1956. In the same year she married John Burrow, a scholar of medieval literature, with whom she had three sons, Richard, Michael and Colin. After a brief period in London, in 1957 the couple returned to Oxford, where they stayed until moving to Bristol in 1976.
According to her autobiography, Jones decided she was an atheist when she was a child.
Jones started writing during the mid-1960s "mostly to keep my sanity", when the youngest of her three children was about two years old and the family lived in a house owned by an Oxford college. Beside the children, she felt harried by the crises of adults in the household: a sick husband, a mother-in-law, a sister, and a friend with daughter. Her first book was a novel for adults published by Macmillan in 1970, entitled Changeover. It originated as the British Empire was divesting colonies; she recalled in 2004 that it had "seemed like every month, we would hear that yet another small island or tiny country had been granted independence."Changeover is set in a fictional African colony during transition, and begins as a memo about the problem of how to "mark changeover" ceremonially is misunderstood to be about the threat of a terrorist named Mark Changeover. It is a farce with a large cast of characters, featuring government, police, and army bureaucracies; sex, politics, and news. In 1965, when Rhodesia declared independence unilaterally (one of the last colonies and not tiny), "I felt as if the book were coming true as I wrote it."
Jones' books range from amusing slapstick situations to sharp social observation (Changeover is both), to witty parody of literary forms. Foremost amongst the latter are The Tough Guide To Fantasyland, and its fictional companion-pieces Dark Lord of Derkholm (1998) and Year of the Griffin (2000), which provide a merciless (though not unaffectionate) critique of formulaic sword-and-sorcery epics.
The Harry Potter books are frequently compared to the works of Diana Wynne Jones. Many of her earlier children's books were out of print in recent years, but have now been re-issued for the young audience whose interest in fantasy and reading was spurred by Harry Potter.
Jones' works are also compared to those of Robin McKinley and Neil Gaiman. She was friends with both McKinley and Gaiman, and Jones and Gaiman are fans of each other's work; she dedicated her 1993 novel Hexwood to him after something he said in conversation inspired a key part of the plot. Gaiman had already dedicated his 1991 four-part comic book mini-series The Books of Magic to "four witches", of whom Jones was one.
For Charmed Life, the first Chrestomanci novel, Jones won the 1978 Guardian Children's Fiction Prize, a once-in-a-lifetime award by The Guardian newspaper that is judged by a panel of children's writers. Three times she was a commended runner-up[a] for the Carnegie Medal from the Library Association, recognising the year's best children's book: for Dogsbody (1975), Charmed Life (1977), and the fourth Chrestomanci book The Lives of Christopher Chant (1988). She won the Mythopoeic Fantasy Award, children's section, in 1996 for The Crown of Dalemark.