Kerr was born Deborah Jane Kerr-Trimmer in Helensburgh, Scotland, the eldest child and only daughter of Kathleen Rose (née Smale) and Capt. Arthur Charles Kerr-Trimmer, a World War I veteran pilot who later became a naval architect and civil engineer. Kerr had a younger brother, Edward (a.k.a. Teddy), who became a journalist and died in a road-rage incident in 2004.

She originally trained as a ballet dancer, first appearing on stage at Sadler's Wells in 1938. After changing careers, she soon found success as an actress. Her first acting teacher was her aunt, Phyllis Smale, who ran the Hicks-Smale Drama School in Bristol.

Her debut was in the British film Contraband in 1940 but her scenes were left on the cutting room floor. She followed that with a series of other films, including Hatter's Castle (1942), in which she starred opposite Robert Newton and James Mason. The following year, she played the triple role of the hero's loves in Michael Powell and Emeric Pressburger's The Life and Death of Colonel Blimp. During the filming, according to Powell's autobiography, she and Powell became lovers. "I realised, said Powell, that Deborah was both the ideal and the flesh-and-blood woman whom I had been searching for".

Although Winston Churchill thought it would ruin wartime morale, and the British Army refused to extend co-operation with the producers, the film confounded critics by proving to be an artistic and commercial triumph. Powell had hoped to reunite Kerr and Roger Livesey, who had played the title character, in his next film, A Canterbury Tale (1944), but her agent had sold her contract to MGM. According to Powell, his affair with Kerr ended when she made it clear to him that she would accept an offer to go to Hollywood if one was made.

It was her role as a troubled nun in Black Narcissus in 1947 which brought her to the attention of Hollywood producers. The film was a hit in the US as well as the UK, and Kerr won the New York Film Critics' Award as Actress of the Year. In Hollywood, her British accent and manners led to a succession of roles portraying a refined, reserved, and proper English lady.

Nevertheless, Kerr frequently used any opportunity to discard her cool exterior. In the 1950 adventure film, King Solomon's Mines, shot on location in Africa with Stewart Granger and Richard Carlson, she impressed audiences with a sexuality and an emotional vulnerability that brought new dimensions to a male-oriented action film. This was immediately followed by her appearance in the 1951 religious epic Quo Vadis?, in which she played the indomitable Lygia, a first century Christian.

Kerr also departed from typecasting with a performance that brought out her sensuality, as Karen in From Here to Eternity (1953) for which she received an Oscar nomination for Best Actress. The American Film Institute acknowledged the iconic status of the scene from that film in which she and Burt Lancaster make love on a Hawaii beach amidst the crashing waves. The organisation named it one of "AFI's top 100 Most Romantic Films" of all time.

From then on, Kerr's career choices would make her known in Hollywood for her versatility as an actress. She portrayed a nun (Heaven Knows, Mr. Allison), a mama's girl (Separate Tables), and a governess (The Chalk Garden), but she also portrayed an earthy Australian sheep-herder's wife (The Sundowners) and lustful and beautiful screen enchantresses (Beloved Infidel, Bonjour tristesse). She also starred in comedies (The Grass is Greener).

Among her most famous roles are Anna Leonowens in the film version of the Rodgers and Hammerstein musical The King and I, and opposite Cary Grant in An Affair to Remember. In 1966, the producers of Carry on Screaming offered her a fee comparable to that paid to the rest of the cast combined, but she turned it down in favour of appearing in an aborted stage version of Flowers for Algernon. In 1967, at the age of 46, she starred in Casino Royale, achieving the distinction of being the oldest Bond Girl in any James Bond film.

In 1969, pressure of competition from younger, upcoming actresses made her agree to appear nude in John Frankenheimer's The Gypsy Moths, the only nude scene in Kerr's career. Concern about the parts being offered to her, as well as the increasing amount of nudity in films in general, led her to abandon film work at the end of the 1960s in favour of television and theatre work.