Diggle was born in Manchester, and grew up in Bradford and Rusholme, where he was a mod. After attending Oldham College, he got a job, but was dismissed for organising a strike.

He attended the Sex Pistols gig at Manchester's Lesser Free Trade Hall, in June 1976. Their manager Malcolm McLaren introduced him to guitarist Pete Shelley and vocalist Howard Devoto, who were looking for a bassist for their band, the Buzzcocks. John Maher joined as drummer and six weeks later the Buzzcocks played their first concert. Steve played bass at several concerts and on the Spiral Scratch EP. Howard Devoto left the Buzzcocks shortly after the EP was released, which prompted the band to reshuffle – Pete Shelley becoming lead vocalist as well as guitarist and Diggle switching from bass to guitar.

Steve Diggle wrote several songs for the Buzzcocks, including "Autonomy", "Fast Cars" (co-written with Howard Devoto and Pete Shelley), "Love Is Lies" (perhaps the first Buzzcocks song featuring an acoustic guitar), "Sitting Round At Home", "You Know You Can't Help It", "Mad Mad Judy", and, perhaps his most famous song, "Harmony in My Head", a Top 40 hit in 1979.

After the Buzzcocks split in 1981, Diggle dedicated to a brief solo era, releasing 50 Years Of Comparative Wealth EP (with the guest participations of fellow-Buzzcocks Steve Garvey and John Maher) the same year, and, in 1982, formed a new band, Flag of Convenience, initially with ex-Buzzcock John Maher. Ex-Easterhouse drummer Gary Rostock played on Diggle's 2000 release Some Reality.

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