McDowell was born in Horsforth, Leeds, the son of Edna (née McDowell), a hotelier, and Charles Taylor, a pub owner. McDowell was married to actress Margot Bennett from 1975 to 1980. He then married actress Mary Steenburgen, whom he had first met while filming Time After Time and they had two children together: Lily Amanda (born January 21, 1981), and Charles Malcolm (born July 10, 1983), before divorcing in 1990.

In 1991, McDowell married Kelley Kuhr, with whom he has two children, Beckett Taylor (born January 29, 2004) and Finn McDowell. In September 2008, it was announced he and Kuhr are expecting their third child, a boy, due in January 2009. He currently resides in Santa Barbara, California. He is the maternal uncle of actor Alexander Siddig, who appeared in Star Trek: Deep Space Nine and Syriana.

McDowell began his professional life serving drinks in his parents' pub and then as a coffee salesman (the latter job providing inspiration for the movie O Lucky Man!). While enrolled in Cannock House School, he began taking acting classes, and eventually secured work as an extra with the Royal Shakespeare Company.

McDowell made his screen debut as school rebel Mick Travis in If.... (1968) by British director Lindsay Anderson. This was followed by Figures in a Landscape (1970) and The Raging Moon (1971). His performance in if.... caught the attention of Stanley Kubrick, who cast McDowell as the lead in A Clockwork Orange. He won great acclaim (nominated for Best Actor by the New York Film Critics Circle) for his role as Alex, the leader of a gang of futuristic thugs.

McDowell rejoined Anderson for O Lucky Man! (1973), which was based on an idea he had, and Britannia Hospital (1982), and starred in Aces High (1975). McDowell regularly turned up on British television productions in the early 1970s in adaptations of theatre classics, one example being opposite Laurence Olivier in The Collection (1976), as part of the series Laurence Olivier Presents.

He co-starred in Voyage of the Damned (1976), and as Dornford Yates' gentleman hero Richard Chandos in She Fell Among Thieves (1977). He made his Hollywood debut as H. G. Wells in Time After Time (1979).

McDowell mainly portrayed antagonists in the late 1970s and 1980s — none more notorious than the title character in the controversial Caligula (1979). He later remarked upon his career playing film villains: "I suppose I'm primarily known for that but in fact, that would only be half of my career if I was to top it all up".

He also appeared in the 1983 action film Blue Thunder as F.E. Cochrane, and the 1982 remake of Cat People. In 1983, he starred in Get Crazy as Reggie Wanker, a parody of Mick Jagger. Also in 1983, McDowell starred as The Wolf (Reginald von Lupen) in Faerie Tale Theatre's rendition of "Little Red Riding Hood" (his wife at that time, Mary, played Little Red Riding Hood). In 1984, he narrated the documentary The Compleat Beatles.

McDowell is well known in Star Trek circles as "the man who killed Captain Kirk" in the film Star Trek Generations, in which he played the mad scientist Dr. Tolian Soran. McDowell has also appeared in several computer games, most notably as Admiral Tolwyn in the Wing Commander series of computer games. His appearance in Wing Commander III marked the series transition from 2D pre-rendered cutscenes to live-action cutscenes.

McDowell played himself in Robert Altman's The Player, in which he chastises protagonist Griffin Mill (Tim Robbins) for badmouthing him behind his back. He teamed up with Altman once again in 2003 for The Company as Mr. A. the fictional director of the Joffrey Ballet of Chicago. His character was based on real-life director Gerald Arpino.

In the 2003 film, I'll Sleep When I'm Dead, he played a straight married man who rapes a young drug dealer to "teach him a lesson". Many regard it as his best and most potent performance to date. The film also starred Clive Owen as the victim's older brother. It has become something of a cult classic.