John Peter McGrath was born on 1 June 1935 to a lower-middle-class Irish Catholic family in Birkenhead. Moving to Mold in North Wales upon the outbreak of the Second World War, McGrath excelled in a grammar school education, after which he joined the Royal Artillery for his 2 years’ National Service. In 1955 McGrath enrolled at St John’s College, Oxford, where his fellow students included Alan Bennett, Giles Havergal (who would also become a theatre director) and Dudley Moore, with whom McGrath collaborated in student theatre. It was there that he also met Elisabeth MacLennan, who would become his wife, frequent collaborator and leading actress.

Despite success both as a playwright, with A Man Has Two Fathers, and as a director, with an open-air production of Aristophanes' The Birds, McGrath intended to pursue a career in teaching. He was diverted from this course in 1958 by an invitation to write for the Royal Court Theatre in London. Two years later McGrath began work with the BBC, writing, producing and directing live broadcasts of TV plays. His experience of the fraught tension of directing live TV began almost immediately, with the dramatic sequences on Dennis Potter's Bookstand (1960). McGrath's growing social concerns were apparent in Z-Cars, the groundbreaking police series he co-created in 1962, which brought a harsh sense of realism to genre drama. McGrath also married Elisabeth McLennan in this year; they would later have two sons and a daughter together.

McGrath again innovated with director Ken Loach in the anti-naturalistic series Diary of a Young Man (1964), and with Ken Russell's Diary of a Nobody later that year. McGrath also began writing for the cinema with films such as Billion Dollar Brain (1967, d. Ken Russell), and The Bofors Gun (1968, d. Jack Gold), based on his own stage play.

Despite these successes, several setbacks contributed to McGrath's growing state of disillusionment with film and TV. Seven Lean Years, written for Ken Russell in 1964, was never made, and the arduous task of adapting La Condition Humaine, Andre Malraux's novel of revolutionary China, also proved fruitless. This latter project, along with McGrath's participation in the 1968 evenements in Paris, perhaps contributed to McGrath's growing interest in radical socialist politics, which led to his using funds accrued through scripting such films as The Reckoning (1970, d. Jack Gold) and The Virgin Soldiers (1969, d. John Dexter), and the German TV drama Ende der Vorstellung 24 Uhr (1970), to establish the 7:84 theatre company. The name was derived from the fact that 7% of the UK population control 84% of British wealth. 7:84 produced its most celebrated play in 1973. The Cheviot The Stag and The Black Black Oil, written by McGrath, told the story of Scotland's exploitation with a mix of drama and ceilidh. The following year it became a popular "Play for Today" on BBC TV . By this time 7:84 had established both English and Scottish branches, and McGrath became almost exclusively concerned with Scottish socio-economic issues for many subsequent years.

The Adventures of Frank signalled McGrath's return to TV in 1980. Collaborations between his production company Freeway Films and Channel Four produced the documentary series Poets and People (1984), Sweetwater Memories (1984) and There Is A Happy Land (1987) , and the dramas Blood Red Roses (1986), John Brown's Body (1990), Border Warfare (1989), and The Long Roads (1993) as well as the Labour party election broadcast of 1992 and a Channel 4 Hogmanay Show in 1987. Further afield, McGrath co-scripted the John 'Die Hard' McTiernan’s 1991 US TV version of Robin Hood (which featured one of McGrath's 7:84 cohorts, Alex Norton, in a supporting role).

McGrath returned to feature film script work with Mairi Mhor, a biopic of the 19th century Skye poet, songwriter and land campaigner. The film was released in 1993, when McGrath was forced into a year's convalescence after contracting septicaemia, following which he carried out production duties on the film Carrington (1995, d. Christopher Hampton). The following year he co-scripted Half the Picture, a TV docu-drama based on the Scott enquiry into the sale of arms to Iraq, and in 1997 he founded the Moonstone International filmmaking/ screenwriting labs with Robert Redford as well as co-producing

At the close of the 1990s McGrath fell ill with leukaemia. Overcoming the effects of the illness, and the treatment that caused him to lose his shock of white hair, he continued in a lifetime's habit of writing and working, co-producing the film Aberdeen (2000, d. H.P. Moland). Having previously published collections of his writings as A Good Night Out (1981) and The Bone Won't Break (1990), the final collection of McGrath's prose, Naked Thoughts That Roam About, was published after his death in January 2002. His final play, HyperLynks, was performed by Elisabeth MacLennan at the Edinburgh Assembly Rooms in August 2001.