He founded and occupied the 38th chair of the Brazilian Academy of Letters from 1897 until his death in 1931. However, he would break all his relations with the Academy in 1924, accusing it of being "old-fashioned".
Graça Aranha was born in São Luís, to a rich and cultured family, son of journalist Temístocles da Silva Maciel Aranha and Maria da Glória da Graça. He was a prodigy, having completed his secondary studies when 13 years old, and went to study Law in Recife. He graduated with honours in 1886 and travelled to the South to work. He became a judge in Porto do Cachoeiro, a village in the backlands of the state of Espírito Santo. This experience was used by him in one of his best known novels, Canaã, a great editorial success in 1902. The novel explored the conflicts of the Brazilian immigrants. According to author Raymond Leslie Williams:
Without having published any books, Graça Aranha was invited to be one of the 40 founding members of the Brazilian Academy of Letter in 1897, by Machado de Assis, Joaquim Nabuco and Lúcio de Mendonça.
In 1900, he was admitted to the Foreign Service as a career diplomat. He worked as such for the next 20 years. While he was stationed in Paris, France, he wrote another success in 1911, the theater drama Malazarte. He retired as a diplomat in 1919 and returned to Brazil in 1921.
Graça Aranha sponsored modernism in the letters and arts and had several personality clashes with the traditionalists at the Academy, headed by writer Coelho Neto. He allied himself to other budding modernists of São Paulo and organized the revolutionary Week of Modern Art in February 1922. He opened the week under booing of an hostile audience, with a conference titled "The aesthetic emotion in modern art".
Shortly before the "Week", Graça Aranha published in 1921 an influential theoretical essay, "Estética da Vida" (An Aesthetics of Life), where he analysed the relationship of Brazilian soul with nature, a recurrent theme at the time. He argued that the three main races had formed the "soul" or essence of the Brazilian people by adding three basic emotions to culture: the Portuguese's melancholy, African childishness and "cosmic terror", and the Indians' "metaphysics of terror", or the use of ghosts. He proposed that Brazilian culture should strive to achieve a new relationship to nature, based on the incorporation of such feelings into art and by overcoming the ethnic differences by means of an integration between the I and the cosmos.
Due to his participation, Graça Aranha was ostracised in the Academy, but he persisted, to the point even that on June 19, 1924 he stated in a conference, titled "The modern spirit" at the Academy, that its creation had been an error. A few months later, on October 18, he resigned from the Academy. In the same year, he founded with Renato Almeida a modernist literature review and magazine, Movimento Brasileiro, which lasted until just after his death.