Born and raised in Minnesota, Ernest Oscar Melby attended St. Olaf College, receiving his B.A. in 1913. From 1913 to 1915 he taught school in rural Minnesota, later becoming School Superintendent in, successively, the cities of Brewster, Blackduck and Long Prairie, Minnesota, 1915-1926. Melby earned his M.A. in 1926 from the University of Minnesota, where he received his Ph.D. in Education and Administration two years later.

In 1928, Melby joined the faculty of Northwestern University's School of Education, becoming Dean of the School of Education in 1934. In 1941 he was appointed President of Montana State University. During his tenure at Montana State University, Melby initiated the "Montana Study", an experimental research program designed to enrich life in small rural communities through continuing education. The study was completed in 1945.

Melby resigned his position in Montana in 1945 to become Dean of the School of Education at New York University. Melby, who had been greatly influenced by the teachings of John Dewey and had applied Dewey's methods of progressive education, found himself the target of criticism during the 1950s because of these views. In the era of McCarthyism and the Cold War, Melby was investigated by the House Un-American Activities Committee and other groups who questioned his patriotism as well as his teaching methods.

Melby retired from New York University in 1956, and in the same year, came to Michigan State University as Distinguished Professor of Education. While at MSU, Melby became a major force in the development of the Mott Institute for Community Improvement (MICI). Largely based on a concept Melby developed for the Montana Study, the goal of the Mott Program was to open the entire community to education and the benefits of educational services. Melby was one of the first coordinators of the Mott Intern Program in which Masters and Doctoral candidates worked for a year on the administrative level in the school system of Flint, Michigan, under the auspices of the Mott program and their respective universities. The program was discontinued in 1974.

During the late 1960s, Melby divided his time between MSU and Florida Atlantic University where he taught and helped to establish a program similar to the Mott program.

For most of his career, Melby was a member of the Cleveland Conference, an annual meeting of educators from all parts of the nation. This conference served as a forum for discussing educational problems and exchanging ideas and ideals.