Lucas attended Thomas Downey High School, where he was an indifferent student at best and dreamed of becoming a professional race car driver. That early dream ended June 12, 1962, when he crashed his Bianchina. The car was clipped from behind while he tried to make a left turn into his driveway. The car rolled; the racing harness that he had installed snapped, and he was thrown from the car. Had the harness not snapped—and Lucas has said it shouldn't have—he would most likely have been crushed to death by the steering column when the car smashed into a walnut tree. (The force of the impact uprooted the tree).

During his recovery, Lucas reevaluated his life and decided to go to college. He enrolled at Modesto Junior College, where he earned an AA degree, then transferred to the University of Southern California's School of Cinema-Television. USC was one of the earliest universities to have a school devoted to film studies. There he made a number of short films, including an early version of THX 1138 (the complete title was "Electronic Labyrinth THX 1138 4EB"), which later became his first full-length feature film.

After graduating with a bachelor of fine arts in film in 1966, he drifted a little, trying to figure out what to do next. He tried joining the Air Force as an officer, but was turned down because of his numerous speeding tickets. He was later drafted by the Army, but tests showed he had diabetes, which killed his paternal grandfather. Lucas was prescribed medication for the disease and does not seem to have required insulin. In 1967, Lucas re-enrolled as a USC graduate student in film production.

Eventually he co-founded the studio American Zoetrope with Francis Ford Coppola, hoping to create a liberating environment for filmmakers to direct outside the perceived oppressive control of the Hollywood Studio system. From the financial success of his films American Graffiti (1973) and Star Wars Episode IV: A New Hope (1977), Lucas was able to set up his own studio, Lucasfilm, in Marin County in his native northern California. Skywalker Sound and Industrial Light and Magic, the sound and visual effects subdivisions of Lucasfilm, respectively, have become among the most respected firms in their fields. Lucasfilm Games, later renamed to LucasArts, was for many years highly regarded in the gaming industry.

Star Wars Episode IV: A New Hope is considered by some to be the first "high concept" film, although others feel the first was Steven Spielberg's Jaws, released two years prior. Lucas and Spielberg had been good friends for some time and eventually worked together on several films, notably the first Indiana Jones vehicle, Raiders of the Lost Ark in 1981.

On a return on investment basis, Star Wars Episode IV: A New Hope proved to be one of the most successful films of all time. During the filming of Star Wars Episode IV: A New Hope, Lucas waived his up front fee as director and negotiated to own the licensing rights—rights which the studio thought were nearly worthless. This decision earned him hundreds of millions of dollars as he was able to directly profit from all the licensed games, toys and collectibles created for the franchise. In 2004 Forbes Magazine estimated Lucas' personal wealth at $3 billion. In 2005 Forbes.com estimated the lifetime revenue generated by the Star Wars franchise at nearly $20 billion.

Lucas was fined by the Directors Guild of America for refusing to have a standard title sequence in his Star Wars films. After paying the fine, he quit the guild. This made it hard for him to find a director for some of his later projects. According to some, he wanted his friend Spielberg to direct some of the later Star Wars movies, but as a member of the guild Spielberg may have been unable to do so. Spielberg has repeatedly stated that Lucas consciously did not let him direct any Star Wars films, despite the fact that Spielberg wanted to. Other directors Lucas pursued to aid him were David Lynch and David Cronenberg, both of whom declined.

On October 3, 1994, Lucas started to write the three Star Wars prequels, and on November 1 that year, he left the day-to-day operations of his filmmaking business and started a sabbatical to finish the prequels.

The American Film Institute awarded Lucas its Lifetime Achievement Award for 2005. He received the award on June 9, 2005.

On June 5, 2005, Lucas was named 100th "Greatest American" by the Discovery Channel.

In 1969, Lucas married film editor Marcia Lou Griffin, who went on to win an Oscar for her work on the original (fourth) Star Wars film. They adopted a daughter, Amanda, in 1981, and divorced in 1983. Lucas has since adopted two more children: Katie, born in 1988, and Jett, born in 1993. All three of his children have appeared in the prequels.

In 2005, Lucas gave $1 million to help build the Martin Luther King, Jr. National Memorial on the National Mall in Washington D.C. to commemorate American civil rights leader Martin Luther King Jr..