The events of the novel take place in St. Petersburg, the capital of Russia, during the summer of 1865, with a brief epilogue set in Siberia. Crime and Punishment stands out as a distinctly urban novel. By selecting an urban setting, Dostoyevsky was pioneering a new direction in Russian literature. While earlier Russian writers like Gogol, Turgenev, and Tolstoy often chose rural estates as their settings, Dostoyevsky opted to set his story entirely in St. Petersburg. This choice mirrored the style of English author Charles Dickens, who famously set his tales in London. St. Petersburg is not just a backdrop; it plays a crucial role in the novel. Dostoyevsky skillfully brings to life the neighborhoods, streets, bridges, and canals of the city. Throughout the narrative, he frequently abbreviates street names, such as "S—Lane" and "K—n Bridge" in the opening paragraph. Those familiar with St. Petersburg might recognize these locations, as modern scholars have identified them.

A significant portion of the story occurs indoors, mainly in cramped tenement apartments. These environments allow Dostoyevsky to craft a tense, claustrophobic atmosphere. For instance, in the weeks leading up to the murders, Raskolnikov isolates himself in his small room, consumed by his thoughts. After committing the murders, he retreats there, occasionally venturing out to wander the city's streets.

Most of the novel's main characters are not native to St. Petersburg; they have moved from remote rural regions of Russia. As a result, they often feel out of place in the urban setting. Typically, rural Russians might see the capital, established by Peter the Great as Russia's "window on the West," as a land of opportunity. However, for characters like Raskolnikov, Katerina Ivanovna, and Svidrigailov, the city becomes a last resort, where their dashed hopes are ultimately realized. Svidrigailov even observes, "there aren't many places where there are as many gloomy, harsh, and strange influences on the soul of man as there are in St. Petersburg." This view of the city as a dead-end is emphasized by the settings. The apartments where Raskolnikov and the Marmeladovs live are so small that they can barely accommodate a few guests. Throughout the novel, characters constantly face the threat of eviction and the fear of homelessness. Near the end, Katerina Ivanovna and her children are reduced to begging on the streets by singing and dancing.

Many readers commonly associate Russia with "winter," picturing heavy snowfall and freezing temperatures. Dostoyevsky challenges these expectations by setting his story during an unusual summer heatwave. The oppressive heat and humidity heighten the overall discomfort in the narrative. They also reflect and intensify Raskolnikov's feverish state throughout the book.