Menninger was born on July 22, 1893 in Topeka, Kansas, the son of Florence Vesta (Kinsley) and Charles Frederick Menninger. In addition to studying at Washburn University, Indiana University and the University of Wisconsin–Madison, he also studied medicine at Harvard Medical School. He graduated from the school cum laude in 1917. While at Washburn, he was a member of the Alpha Delta Fraternity, a local group. In 1960 he was inducted into the school's Sagamore Honor Society.
Beginning with an internship in Kansas City, Menninger worked at the Boston Psychopathic Hospital and taught at Harvard Medical School. In 1919, he returned to Topeka where, together with his father, he founded the Menninger Clinic. By 1925, they had attracted enough investors, including brother William C. Menninger, to build the Menninger Sanitarium. His book, The Human Mind, which explained the science of psychiatry, was published in 1930.
The Menninger Foundation was established in 1941. After World War II, Karl Menninger was instrumental in founding the Winter Veterans Administration Hospital, in Topeka. It became the largest psychiatric training center in the world. He was among the first members of the Society for General Systems Research.
In 1946 he founded the Menninger School of Psychiatry. It was renamed in his honor in 1985 as the Karl Menninger School of Psychiatry and Mental Health Science. In 1952, Karl Targownik, who would become one of his closest friends, joined the Clinic.