Lehár was born in the northern part of Komárom, Austria-Hungary (it is now Komárno in Slovakia) as the eldest son of a bandmaster in the Infantry Regiment No. 50 of the Austro-Hungarian Army. While his younger brother Anton entered cadet school in Vienna to become a professional officer, Franz studied violin and composition at the Prague Conservatory but was advised by Antonín Dvořák to focus on composing music. After graduation in 1899 he joined his father's band in Vienna, as assistant bandmaster. In 1902 he became conductor at the historic Vienna Theater an der Wien, where his first opera Wiener Frauen was performed in November of that year.

He is most famous for his operettas - the most successful of which is The Merry Widow (Die lustige Witwe), but he also wrote sonatas, symphonic poems, marches, and a number of waltzes, (the most popular being Gold und Silber, composed for Princess Metternich's "Gold and Silver" Ball, January 1902) some of which were drawn from his famous operettas. Individual songs from some of the operettas have become standards, notably "Vilja" from The Merry Widow and "You Are My Heart's Delight" ("Dein ist mein ganzes Herz") from The Land of Smiles.

Lehár was also associated with the operatic tenor Richard Tauber, who sang in many of his operettas, beginning with Frasquita (1922), in which Lehár once again found a suitable post-war style. Between 1925 and 1934 he wrote six operettas specifically for Tauber's voice.

By 1935 he decided to form his own publishing house, Glocken-Verlag (“Publishing House of the Bells”), to maximize his personal control over performance rights to his works.

He died in 1948 in Bad Ischl, near Salzburg where he was also buried. His younger brother Anton became the administrator of his estate, promoting the popularity of Franz Lehár's music.