Allan Holdsworth was born in Bradford on August 6, 1946, and raised by his maternal grandparents, Sam and Elsie Holdsworth. Sam had been a jazz pianist who tried his luck in London and came back to Yorkshire, and he gave the boy his first music tuition. The guitar arrived when Allan was 17, and it was never his first choice: he had wanted to play the saxophone. That mismatch shaped everything that followed, because he worked out a smooth, legato way of fingering the guitar so that his lines would breathe like a horn player's. His first professional job was with the Glen South Band on the Mecca dance-hall circuit across the north of England. After moving to London he was taken up by the saxophonist Ray Warleigh, according to AllMusic.

His first recording was with the band 'Igginbottom, whose only album, 'Igginbottom's Wrench, came out in 1969. He played guitar on bandleader Ian Carr's Nucleus album Belladonna (1972), then joined the progressive rock band Tempest for its self-titled debut in 1973. In December 1973 he became the guitarist of Soft Machine, the Canterbury jazz-rock group, and stayed until March 1975; he can be heard on Bundles (1975), where he plays electric, acoustic and twelve-string guitar and is credited as a writer on two tracks. The drummer Tony Williams heard him around then and invited him into a new version of his Lifetime band, the seat that had belonged to John McLaughlin. The New Tony Williams Lifetime recorded Believe It (1975) and Million Dollar Legs (1976) with Holdsworth, keyboardist Alan Pasqua and bassist Tony Newton. Holdsworth later said he valued his time with Williams above most of his other experiences.

The rest of the 1970s was a run of bands and sessions in which the jazz and rock sides sit side by side. He played on Pierre Moerlen's Gong albums Gazeuse! (1976), Expresso II (1978) and Time Is the Key (1979), and on Jean-Luc Ponty's Enigmatic Ocean (1977). In 1976 CTI released Velvet Darkness under his name. Holdsworth has said he thought the tapes were rehearsals, and for decades he disliked the record intensely. In 1977 the drummer Bill Bruford recruited him for Feels Good to Me (January 1978), and then for the progressive rock supergroup U.K., with keyboardist and violinist Eddie Jobson and bassist John Wetton. He enjoyed making the 1978 U.K. album but described the touring as miserable, because the other two wanted his solos to follow a set structure each night. He rejoined Bruford's own band for One of a Kind (1979), then left to pursue his own music. In between he led a short-lived quartet with pianist Pat Smythe that recorded for BBC Radio in 1978, and he began a long partnership with the jazz pianist Gordon Beck on Sunbird (1979) and The Things You See (1980).

His own bands began in the early 1980s as a trio with drummer Gary Husband and bassist Paul Carmichael, first called False Alarm. With singer Paul Williams, a former Tempest bandmate, it became I.O.U., and its self-titled album came out independently in 1982 and was reissued by Enigma in 1985. Eddie Van Halen had been praising Holdsworth in guitar magazines since 1980, and he brought him to the attention of Warner Bros. executive Mo Ostin. The result was the six-track Road Games (1983), which earned a Grammy nomination for Best Rock Instrumental Performance at the 1984 awards and featured vocals by Jack Bruce. Holdsworth, unhappy with the creative direction, soon left the label, moved permanently to Southern California and signed with Enigma for Metal Fatigue (1985). Bassist Jimmy Johnson joined around this time and, like Husband and the drummer Chad Wackerman, stayed with him for decades. Atavachron (1986) introduced the SynthAxe, a guitar-shaped MIDI controller with a breath-operated expression device, and he became the instrument's best-known player. Sand (1987) and Secrets (1989) followed, with another album with Gordon Beck, With a Heart in My Song (1988), in between. From Secrets on, his studio albums were largely recorded at his own studio, The Brewery, in North County, San Diego. AllMusic notes that Guitar Player readers voted him best guitar synthesist every year from 1989 through 1994.

In the 1990s he made Truth in Shredding (1990) with the fusion guitarist Frank Gambale, played guest guitar on five tracks of Level 42's Guaranteed (1991) after the death of that band's guitarist Alan Murphy, and appeared on Wackerman's Forty Reasons (1991) and The View (1993). Wardenclyffe Tower (1992) added baritone guitars built by Bill DeLap to the SynthAxe, and Hard Hat Area (1993) was made with Husband, keyboardist Steve Hunt and bassist Skúli Sverrisson. In 1996 he recorded Heavy Machinery with the Swedish brothers Jens and Anders Johansson, a harder-edged record than most of his work, and None Too Soon, an album of other people's music with Beck on piano. Its repertoire runs from John Coltrane's "Countdown" and Django Reinhardt's "Nuages" to Joe Henderson's "Isotope" and "Inner Urge" and Bill Evans's "Very Early," and it is the plainest statement of the jazz tradition he came from. The Sixteen Men of Tain (2000) was his first album with an entirely acoustic rhythm section, bassist Dave Carpenter and drummer Gary Novak.

After 2000 he released music more slowly. All Night Wrong (2002) and Then! (2003) were live albums, and he guested on Derek Sherinian's Mythology (2004). In 2006 and 2007 he toured a tribute to Tony Williams with Alan Pasqua, Wackerman and bassist Jimmy Haslip, documented on the album Blues for Tony (2009). From 2008 to 2010 he toured in the improvising supergroup HoBoLeMa with drummers Terry Bozzio and Pat Mastelotto and bassist Tony Levin. A PledgeMusic campaign funded the rarities collection Tales from the Vault, released in July 2016. On April 7, 2017, Manifesto Records issued a twelve-album box set of his solo work and the two-disc Eidolon. He played his last concert in San Diego on April 10, and passed away at his home in Vista, California, on April 15, 2017, at the age of 70. Manifesto has since released archival concerts from Japan (1984), Warsaw (1998), Frankfurt (1986), Leverkusen (1997 and 2010) and the Jarasum festival in Korea (2014).

Holdsworth's guitar playing is among the most recognisable and least imitated in fusion. His long legato lines, built from hammer-ons, pull-offs and slides with very little picking, were meant to sound like a saxophone, and the saxophonists he cited most were John Coltrane, Cannonball Adderley, Charlie Parker and Michael Brecker; among guitarists he named Django Reinhardt, Joe Pass, Wes Montgomery, Jimmy Raney and Charlie Christian. His chords are wide, fingerpicked voicings swelled with the volume control and washed in delay and chorus, and his harmony draws on unusual scales and shifting tonal centres that give his solos an unresolved, "outside" quality. He built his sound with unusual tools: signature guitars with Ibanez, Steinberger and Carvin, headless baritone guitars, and the SynthAxe.

The jazz and rock sides of his career are both real, and he never chose between them. His collaborators include Gordon Beck, Tony Williams, Gary Husband, Alan Pasqua and Ian Carr's Nucleus, and he recorded Coltrane, Evans and Henderson tunes. He also worked in progressive rock (Tempest, U.K., Gong, Bruford), played guest solos on rock records, and found his loudest early champion in Eddie Van Halen. AllMusic lists his genres as both pop/rock and jazz, and his admirers come from both sides: Frank Zappa called him one of the most interesting guitarists on the planet, and Robben Ford compared him to Coltrane. He remained little known outside musicians' circles, and some listeners, guitarists among them, found his music too technical to follow. His own view was that he did not expect everybody to like it.