Stephenson attended high school in Winnipeg, however left to fight in World War I. After serving in the trenches and being gassed by Germans he learned how to fly during the period he was recuperating. He would go on to transfer from the army to the Royal Flying Corps. He later earned the Military Cross, the Distinguished Flying Cross and other decorations. After the war he became a wealthy industrialist with business contacts throughout the globe.
Working as a spy for the British government in the 1930s, he voluntarily provided information about Nazi Germany building up its armed forces and military strength. In 1940, Stephenson was appointed by British Prime Minister Winston Churchill to set up and run British Security Co-ordination, a sprawling New York-based intelligence operation. There he and his agents tracked enemy communications and Nazi sympathizers. He used his title as a British Passport Control Officer to create a secret British intelligence network throughout the Western Hemisphere and would became Churchill's personal representative to President Franklin Roosevelt. In 1946 he received the Presidential Medal for Merit, at the time the highest civilian decoration in the United States, given mostly to people who contributed to the effort during World War II.
Stephenson died in Bermuda in January 1989 at the age of 93.