Born in rural Connecticut, Allen had a frontier upbringing but also received an education that included some philosophical teachings. In the late 1760s he became interested in the New Hampshire Grants, buying land there and becoming embroiled in the legal disputes surrounding the territory. Legal setbacks led to the formation of the Green Mountain Boys, who Allen led in a campaign of intimidation and property destruction to drive New York settlers from the Grants. When the American Revolutionary War broke out, Allen and the Boys seized the initiative and captured Fort Ticonderoga in May 1775. In September 1775 Allen led a failed attempt on Montreal that resulted in his capture by British authorities. First imprisoned aboard Royal Navy ships, he was paroled in New York City, and finally released in a prisoner exchange in 1778. He returned to the now-independent Vermont Republic, where he continued to be politically active. In addition to continuing resistance to New York's attempts to assert control over the territory, Allen was active in efforts by Vermont's leadership for recognition by Congress, and he participated in controversial negotiations with the British over the possibility of Vermont becoming a separate British province.

Allen wrote accounts of his exploits in the war that were widely read in the 19th century, as well as philosophical treatises and documents relating to the politics of Vermont's formation. His business dealings included successful farming operations, one of Connecticut's early iron works, and land speculation in the Vermont territory. Land purchased by Allen and his brothers included tracts of land that eventually became Burlington, Vermont.