Choudhary Rahmat Ali was born in  Balachaur, Punjab, India. After taking his anglo-vernacular middle school certificate from the Municipal Board Middle School of Rahon in 1910, he moved to the Saindas Anglo-Sanskrit High School, Jullundher, where he passed his finals in 1912. In 1918, he received his BA degree from Islamia College, Lahore. He moved to England in November 1930.

On 18 November he joined one of the Inns of Court, Middle Temple, but due to complications he was not called to the Bar until 26 January 1943. On 26 January 1931, he was admitted to Emmanuel College, Cambridge, where he passed the Law Tripos examination in June 1932, received his BB degree on 29 April 1933 and his MA degree on 18 October 1940.

Although Rahmat Ali had already voiced his idea for an independent Muslim state on the subcontinent before he moved to Britain, it was here that he would publish his pamphlet Now or Never: Are We to Live or Perish for Ever? (1933). In this pamphlet, issued on 28 January 1933, he made an appeal 'on behalf of the thirty million Muslims of PAKSTAN, who live in the five Northern Units of India - Punjab, N. W. F. P. (Afghan Province), Kashmir, Sindh and Baluchistan, embodying their inexorable demand for the recognition of their separate national status, as distinct from the rest of India, by the grant of a separate Federal Constitution on social, religious, political and historical grounds'. According to one source, Rahmat Ali had already coined the word in late 1932, while travelling on top of a bus (route 11) in London (see Aziz, Rahmat Ali, p. 89).

Rahmat Ali was dissatisfied with the outcome of the Round Table Conferences (1930-32) and felt that the nation was being sacrificed. His declaration was co-signed by Khan Muhammad Aslam Khan Khattak, Sahibzada Sheikh Muhammad Sadiq and Khan Inayat Ullah Khan in order to make it more representative. Given that he was just a student, his declaration was dismissed by politicians on all sides, Muslim, Hindu and British. In order to gain more political weight, he founded the Pakistan National Movement in 1933. The Movement fought against 'Indianism', and from his Cambridge address Rahmat Ali published a series of pamphlets over the next years.

In 1942, he published the pamphlet 'The Millat and the Mission: Seve Commandments of Destiny for the "Seventh" Continent of Dinia', in which he called for two further independent Muslim states, Bangistan (an abbreviation of Bang-i-Islamistan) and Osmanistan. This grandiose scheme represented Rahmat Ali's utmost dedication to the creation of a new Muslim Asia with seven Muslim strongholds surrounded by Hindu regions.

Rahmat Ali's declaration was too radical for the Jinnah-led All-India Muslim League, which had seized upon the possibility of an independent Muslim state and garnered public support in the 1940s. When Jinnah and the Muslim League accepted the British plan in June of 1947, Rahmat Ali was furious. The concessions made by the League prompted Rahmat Ali to publish a leaflet entitled 'The Greatest Betrayal: How to Redeem the Millat?' (1947) and later that year the book Pakistan: The Fatherland of the Pak Nation.

In the summer of 1948 he made a trip to his home town, which was now part of India, and returned to England in October 1948. Upon return to Cambridge his health started to deteriorate. He fell ill in late January 1951 and was admitted to the Evelyn Nursing Home where he died on 3 February 1951.