Arcade Fire were formed in 2003 in Montreal, Canada by the future husband and wife duo of Win Butler and Régine Chassagne, Win's brother William Butler, Richard Reed Parry and Tim Kingsbury, a line up that was later joined by Sarah Neufeld and Jeremy Gara. When asked about their choice of moniker, and the rumour that it refers to a real life fire in an arcade, Win Butler has said ‘It's not a rumour, it's based on a story that someone told me. It's not an actual event, but one that I took to be real. I would say that it's probably something that the kid made up, but at the time I believed him.’ The band self-released an EP, often referred to by fans as the “Us Kids Know” EP, later in 2003, which was sold at their shows (the EP was later remastered and given a full release following the success of the band’s first few full length albums). Their live shows attracted interest from independent record label Merge Records, with whom they signed a recording contract within a year of forming.

Debut album ”Funeral” was released in September 2004 in Canada and February 2005 in the UK, its title referring to the deaths of several relatives of band members during its recording. By November 2005, ”Funeral” had gone gold in both Canada and the UK, had sold over 500,000 copies worldwide, despite it being an independent release with minimal television or radio exposure, and had become Merge Records' first in the Billboard 200 chart. ”Funeral”, and one of its singles, "Cold Wind", were nominated for Grammys in the “Best Alternative Rock Album” and “Best Song Written for Television, Film, or Other Media” categories (“Six Feet Under, Vol. 2: Everything Ends”), respectively. Arcade Fire were nominated for 2 BRIT Awards (“Best International Group”, and “Best International Breakthrough Act”), with ”Funeral” also receiving a nomination for “Best International Album”.

During the downtime between ”Funeral” and the beginning of recording sessions for sophomore long player, ”Neon Bible”, the band purchased a defunct church in the small Quebec town of Farnham, approximately 70 kms (45 miles) outside of Montreal, and spent the early part of 2006 converting it into a recording studio. In March 2007, ”Neon Bible” debuted at number 1 on the Canadian and Irish albums chart, and the Rock and Indie charts, and number 2 on the US Billboard Top 200 chart and the UK Top 40 Album chart. First single, "Black Mirror", reached the number 1 spot on CBC Radio 3's R3-30 chart for 5 consecutive weeks in March/April 2007, becoming the first single by any band ever to spend more than 2 weeks atop the chart.

A re-recorded version of the band's song "Wake Up" (from ”Funeral”) was used for the trailer of the Spike Jonze film, 2009’s “Where the Wild Things Are”.

Arcade Fire have won numerous awards, including both the Meteors 2008 “Best International Album” award and the Juno Awards 2008 “Alternative Album of the Year” award (both for ”Neon Bible”).