Ikbal Ali Shah was the Son of the Nawab of Sardhana, and great grandson of the Afghan statesman Jan Fishan Khan. He came to Britain before the First World War and studied at Oxford and Edinburgh University, where he met his wife, the Scottish author Morag Murray. They had three children, the Sufi writers and translators Amina Shah (1918), Omar Ali-Shah (1922-2005) and Idries Shah (1924-96), with whom Doris Lessing later studied Sufism. He wrote collections of tales and adventure, like The Golden Caravan, as well as non-fiction like The Spirit of the East. He later taught Sufi "classes" in England, which were the precursors to the Sufi school established by his son, Idries Shah. Ikbal Ali Shah also wrote biographies, including on President Kemal Attaturk whom he claims to have known personally.

Sirdar Ikbal Ali Shah was a prolific writer of articles, and books relating to South Asia, Sufism and the Muslim World. He published in The Bookman and other journals, but struggled to live by his writing. In 1939 he contacted the India Office for work as a writer in the Information Department, for whom he wrote articles useful for Muslim papers in India and he provided the Ministry with a regular service of news along these lines. In a letter dated 19 January 1939, A. H. Joyce (Secretary Political, External Department) stated that the India Office had known Ikbal Ali Shah ‘as a contributor of articles, principally to the provincial newspapers in this country, on matters affecting the Muslim world and particularly those affecting India and Afghanistan. He is also the author of quite a number of books of a popular type covering a similar field’ (L/I/1/1509). He was also a prolific speaker and addressed the Oxford Majlis in 1941 on the topic ‘Incompatibility of Islamic and Fascist Philosophies’, and lascars in the East End on ‘English, Their Country and Their Ways’. He also wrote a paper ‘Little Arabia in Britain', on Cardiff’s Muslim community.

Ikbal Ali Shah was linked to the controversy surrounding the 1967 publication of a new translation of Omar Khayyam's Rubaiyat, by his son Omar Ali-Shah and the English poet Robert Graves. The translation was based on an annotated "crib", supposedly derived from an old manuscript said to have been in the Shah family's possession for 800 years. L. P. Elwell-Sutton, an Orientalist at Edinburgh University, and others who reviewed the book, expressed their conviction that the story of the ancient family manuscript was false. Graves had been led to believe that Ikbal Ali Shah had access to the disputed manuscript. Shah was about to produce it at the time of his death from a car accident, to allay the growing controversy surrounding the translation. He and his wife are buried in the Muslim section of the cemetery at Brookwood, Woking, Surrey.