He was the second son of Friedrich Wilhelm II, Duke of Saxe-Altenburg and Magdalene Sybille of Saxony, his second wife.

When his father died in 1669, Friedrich Wilhelm III succeeded him; but, because he was only twelve years old, his maternal uncles, Elector Johann Georg II of Saxony and Duke Maurice of Saxe-Zeitz, assumed the guardianship of the new duke and the regency of the duchy.

Only three years later, the young duke died of smallpox shortly after returning from a trip to Dresden.

His burial took place three months later, on 17 July 1672 at his father's tomb in the church of Schloss Altenburg.

Saxe-Altenburg was split between the branches of Saxe-Gotha and Saxe-Weimar; but, on the basis of the will of the Duke Johann Philipp of Saxe-Altenburg (Friedrich Wilhelm III's uncle) the greater part of the duchy was retained by Saxe-Gotha, because they were the descendants of Elisabeth Sophie, the only daughter of Johann Philipp, who declared her the general heiress of the family in case of the extinction of the male line.