Otto was the eldest son of Margrave Rudolf III of Hachberg-Sausenberg and his second wife, Anne of Freiburg-Neuchâtel.

This was probably a reward for Otto's father, Margrave Rudolf III, who had changed sides and supported Bonifact IX in Rome, against Antipope Benedict XIII in Avignon.

Otto III had to deal with a highly indebted bishopric, and he to expand his episcopal palace to accommodate the Council of Constance.

In general, Otto III was regarded as spending too much on construction activities, thereby increasing the debts of an already highly indebted diocese.

He deposed several high diocesan officials and by 1429,he managed to regain control of the bishopric.

In 1431, the conflict with the chapter escalated again, and Otto III temporarily moved his residence to Schaffhausen.

After he was deposed (or he resigned, as it is often described in the literature), Otto continued to expand his personal library, which he had starting in the days of the Council of Constance.

In March 1446, John of Segovia confirmed Otto's views regarding the Immaculate Conception of Mary.

His brother William sold his library to Frederick Wartenberg, the abbot of Reichenau Abbey.