Gruffudd was born on 6 October 1973 in the village of Llwydcoed near the town of Aberdare, in the county borough of Rhondda Cynon Taff, Mid Glamorgan, south Wales. His family later moved to Cardiff.

Gruffudd's parents, Peter and Gillian Griffiths, were teachers. His father was headmaster at two Welsh comprehensive schools in South Wales, first at Ysgol Gyfun Llanhari then later at Ysgol Gyfun Rhydfelen. He has two siblings; a brother, Alun, who is two years younger, and a sister, Siwan, who is seven years younger than he is.

The popular Welsh name "Ioan" is an equivalent of "John", and "Gruffudd" corresponds to the Anglicized "Griffith". He has been quoted as saying, "I'm determined not to lose my name. It's who I am. It has neither aided my progress nor hampered it. It's just who I am. My character, my make-up. My culture and heritage is a very rich one. So what if it's difficult for people to pronounce? We all learned how to say Schwarzenegger."

Gruffudd attended Ysgol Gynradd Gymraeg Aberdar (Ynyslwyd) (now situated in Cwmdare), Ysgol Gymraeg Melin Gruffydd, and Ysgol Gyfun Gymraeg Glantaf, where he sat his GCSEs and A-Levels.

A natural musician, he was an accomplished oboist in his teens, attaining a Grade 8 level in the ABRSM music examinations and playing for the South Glamorgan Youth Orchestra for several years, but gave it up once acting took up most of his time. He also won prizes for his high baritone singing while at school, including one at the National Eisteddfod.

He has said, "As a Welshman, I grew up in a culture of singing and performing with music, and I think it was through this performing that I got my confidence as an actor."

Gruffudd's parents are committed Christians, and in his early 20s he was a member of the controversial London Church of Christ but that his mother later came to London to "sort [his] head out". In June 2007 he said that he "wouldn't describe myself as a deeply religious man".

Gruffudd started his acting career at the age of 13 in a Welsh television film called Austin (1986) and then later moved on to the Welsh soap opera Pobol y Cwm (People of the Valley) from 1987 to 1994.

In 1992, at 18, he began attending the Royal Academy of Dramatic Art (RADA) in London. However, he was only given small parts in the Academy's productions, and feeling isolated and directionless, almost dropped out several times. However, in 1995 in his final year, he was cast in Ibsen's Hedda Gabler as George (Jörgen) Tesman, the husband of Hedda, the lead character. This performance led to him being offered the lead role in the 1996 TV remake of Poldark.

After playing Oscar Wilde's lover John Gray in 1997's Wilde he took his first international role as Fifth Officer Harold Lowe in the blockbuster film Titanic. He later landed his best-known role as Horatio Hornblower in Hornblower, the Meridian production of the C.S. Forester novels (1998–2003), shown on ITV1 and A&E.

Gruffudd has said: "It was quite something for an unknown actor to get the lead. So I will always be grateful to Hornblower. I would love to play this character through every stage of his life. I think it would be unique to have an actor playing him from the very early days as a midshipman, through till he's an Admiral. So, I would love to play this character till he perishes." Since February 20, 2007, Gruffudd has been making plans to obtain rights to the Horatio Hornblower novels in order to produce a film for the big screen.

Gruffudd's TV work includes playing the character Pip in the BBC TV production of Charles Dickens' Great Expectations (1999) and architect Philip Bosinney in ITV's adaptation of The Forsyte Saga (2002).

As regards films, he has starred in 102 Dalmatians (2000), Black Hawk Down (2001) and King Arthur (2004). In 2007 he starred in the historical drama Amazing Grace as William Wilberforce, the British slavery abolitionist, receiving critical acclaim for the role.

Gruffudd has also portrayed characters of both Marvel Comics and DC Comics, having appeared as Mister Fantastic (Reed Richards) in Marvel's Fantastic Four (2005) and Fantastic Four: Rise of the Silver Surfer (2007), and provided the voice of Mister Miracle in DC's Justice League Unlimited (2004–2006).

Apart from television and film work, he also starred in the music video of Westlife's version of "Uptown Girl" (2001) alongside Claudia Schiffer, and on 7 July 2007 he was a presenter at the UK leg of Live Earth at Wembley Stadium, London.

Gruffudd is a native Welsh speaker. He was inducted into the Gorsedd Beirdd Ynys Prydain (the Bardic Order of Great Britain) at the highest rank of druid in the National Eisteddfod at Meifod, Mid Wales, on 4 August 2003, with the bardic name "Ioan".

In July 2008 he featured in a promotional trailer in Welsh for BBC Wales alongside fellow Welshmen Matthew Rhys and Gethin Jones publicising the broadcaster's coverage of the 2008 National Eisteddfod of Wales in Cardiff.