Faludy completed his schooling in the Fasori Evangélikus Gimnázium and studied at the Universities of Vienna, Berlin and Graz.

In 1938, he left Hungary for Paris because of his Jewish ancestry, and then for the U.S. During World War II, he served in the American forces.

In April 1947 he was among a group that destroyed a Budapest statue of Ottokár Prohászka, a Hungarian bishop who is respected by many but who is often considered antisemitic.

It was during his stay in London that Faludy wrote his memoir, which was soon translated to English, by which he is still best known outside Hungary: My Happy Days in Hell.

After the fall of communism, his works, which had previously been distributed only as samizdat during the Communist period, were at last published in Hungary.

Renowned for his anecdotes as well as his writing, he was a celebrated wit whose life story attracted the attention of many foreign authors.

In 1963 Eric Johnson (1937–2004), a US ballet dancer and later a renowned poet in contemporary Latin poetry, read the memoir My Happy Days in Hell, became enchanted with the author, and traveled to Hungary in search of Faludy.

Even though Faludy was extremely open about his bisexuality, it wasn't revealed to the public until the Hungarian state-owned television broadcast an interview with him after his death.

In 2006, a memorial park was built in his honor designed by the landscape architect Scott Torrance, facing his former apartment at 25 St. Mary's Street.

A bronze plaque was placed in the park with his portrait, made by the Hungarian-born sculptor Dora de Pedery-Hunt.