Lambuth was born in Shanghai, the son of the founding missionaries of Methodist Episcopal Church, South (MECS) missions in China. Having decided to be a medical missionary he obtained both the M.D. and ordination as elder in 1877. Also in 1877 he married Daisy Kelley, daughter of China missionaries and granddaughter of Mrs. M. L. Kelley, who organized the first Southern Methodist women to support foreign missions. From 1877 until 1885, with the exception of further medical study in the United States, he did medical work in China, including founding an opium treatment center in Shanghai, opening Soochow hospital, and beginning what became Rockefeller Hospital in Peking. In 1887 he and his parents founded the MECS mission in Japan. As superintendent of the Japanese mission, he turned from medical to educational and evangelistic work.
In 1891 the Lambuths returned to the United States and Walter became editor of the Methodist Review of Missions. From 1892 until 1910 he served as secretary of the board of missions. He led in ecumenical causes, including the Foreign Missions Conference of North America, the Ecumenical Missionary Conference of 1900, and the Edinburgh World Missionary Conference of 1910, including its Continuation Committee. Under his leadership, Southern Methodists began missions in Cuba and Korea.
In 1910 he was elected bishop of the church in Brazil and Africa. With linguist John Wesley Gilbert of the Colored Methodist Episcopal Church, Lambuth in 1911 traveled 4,100 miles through the Belgian Congo and opened Methodist missions in central Africa. In 1919 he initiated missions to Russians and Koreans in Siberia and Manchuria. He died in Japan, as had his father before him; his ashes were buried next to his mother's in Shanghai.