Allende was born in Lima, Peru to diplomat Tomás Allende, the Chilean ambassador to Peru and Francisca Llona Barros. Tomás Allende was the first cousin (with Isabel thus being first cousin, once removed)   of Salvador Allende, the President of Chile from 1970 to 1973. It is important to note that many sources also cite Isabel as Salvador Allende's niece, although most, if not all of these sources, do not state the relationship between Salvador and Tomás. The reason for this is that in Spanish, the words "tio" and "tia" refer equally to the siblings of one's parents as to the cousins of one's parents. So, in Spanish, Isabel Allende is, indeed, the niece of Salvador Allende, but in English, she is not his niece, but rather his first cousin once removed.  In 1945, after Tomás's "disappearance", Isabel's mother relocated with their three children to Chile, where they lived until 1953, moving briefly to Bolivia, then Lebanon. The family returned to Chile in 1958 so that Allende could complete her secondary education.
Allende attended a number of private schools in Lebanon and Chile and was also briefly home-schooled. The young Isabel also read widely, particularly the works of William Shakespeare. In Chile she met her first husband Miguel Frías, whom she married in 1962. Reportedly, "Allende married early, into an Anglophile family and a kind of double life: at home she was the obedient wife and mother of two; in public she became, after a spell translating Barbara Cartland, a moderately well-known TV personality, a dramatist and a journalist on a feminist magazine."
From 1959 to 1965, Allende worked with the United Nation's Food and Agriculture Organization in Santiago, then later in Brussels, Belgium, and elsewhere in Europe. For a brief while in Chile, she also had a job translating Romance novels from English to Spanish. However, she was fired for making unauthorized changes to the dialogue of the heroines to make them sound more intelligent as well as altering the Cinderella endings to let the heroines find more independence and do good in the world. Her daughter Paula was born in 1963. In 1966, Allende returned to Chile, and her son Nicolás was born there that year.
Reportedly, "the CIA-backed military coup in [September of] 1973 (that brought Augusto Pinochet to power) changed everything" for Allende because "her name meant she was caught up in finding safe passage for those on the wanted lists" (helping until her mother and stepfather, a diplomat in Argentina, narrowly escaped assassination). When she herself was added to the list and began receiving death threats, she fled to Venezuela, where she stayed for 13 years. 
During a visit to California in 1988, Allende met her second husband, attorney Willie Gordon. In 1994 she was awarded the Gabriela Mistral Order of Merit- the first woman to receive this honor. In 2003, Allende obtained United States citizenship and currently lives in San Francisco. Most of her family lives near her with her son living "with his second wife and her grandchildren just down the hill; her son-in-law and his family live in the house she and her second husband, San Francisco lawyer and novelist William Gordon, vacated."
In 2006, she was one of the eight flag bearers at the Opening Ceremony of the Winter Olympics in Turin, Italy.
In 2008, Allende received the honorary degree Doctor of Humane Letters from San Francisco State University for her "distinguished contributions as a literary artist and humanitarian." [San Francisco State University 2008 Commencement Program]