Dalton was born in Colwyn Bay, Wales, his English father was a captain in the Special Operations Executive during World War II and had become an advertising executive at the time of his sons birth. Before his fourth birthday, the family returned to England to Belper, Derbyshire. While in Belper, he attended the Herbert Strutt Grammar School.

As a teenager, he was a member of the Air cadets however he became interested in acting and left Grammar School in 1964 to enroll in the Royal Academy of Dramatic Art and tour with the National Youth Theatre. Dalton did not complete his RADA studies, leaving the academy in 1966 to join the ensemble of the Birmingham Repertory Theatre.

He quickly moved to television, working mainly with BBC and, in 1968, made his film debut in The Lion in Winter. This was the first of several period dramas, which included a remake of Wuthering Heights in 1970 in which he portrayed the tortured Heathcliff. In 1968 (aged only 22) Albert Broccoli asked Dalton to take over for Sean Connery in the role of James Bond. This would not be the last time Dalton turned the role down.

After a few more films, Dalton took a break in 1971 to concentrate on the theatre, performing with the Royal Shakespeare Company and other troupes throughout the world. With two notable excpetions: the 1972 film Mary, Queen of Scots and 1975's Permission to Kill, he remained a theatre actor until 1978. That year he starred in Sextette as the husband of 85-year-old Mae West, hailing his return to cinema and the beginning of his American career. While in the United States, Dalton worked mainly in television, although he starred in several films. During this time he played Prince Barin in the cult classic Flash Gordon and gave notable performances for the BBC, particularly as Mr. Rochester in the 1983 miniseries Jane Eyre.

Dalton's first outing as 007, The Living Daylights (1987) was successful, and grossed more than the previous two Bond films with Roger Moore, as well as contemporary box-office rivals such as Die Hard and Lethal Weapon. However, his second film, Licence to Kill (1989), although more successful than its predecessor in most markets, did not perform as well at the U.S. box office, in large part due to a lacklustre marketing campaign, after the title of the film was abruptly changed from 'License Revoked'.

Since Dalton was contracted to do three Bond movies, the pre-production of his third film began in 1990, in order to be released in 1991. It was rumored that he would make The Property of a Lady (which is one of Ian Fleming's short stories and elements of which had been included in Octopussy), but this was never confirmed. What was confirmed is that the story would deal with the destruction of a chemical weapons laboratory in Scotland, and the events would take place in London, Tokyo and Hong Kong. However, the film was cancelled due to legal issues between UA/MGM and EON, which lasted for four years.

The legal battle ended in 1993, and Dalton was expected to return as James Bond in the next Bond movie, which later became GoldenEye. Despite his contract having expired, negotiations with him to renew it took place. In an interview with the Daily Mail in August 1993, Dalton indicated that Michael France was writing the screenplay for the new movie, and the production was to begin in January or February 1994. When the deadline was not met, Dalton surprised everyone on the April 12, 1994 with the announcement that he would not return as James Bond. At this time he was shooting the mini-series Scarlett. The announcement for the new Bond came two months, with Pierce Brosnan playing the role.