Newman was born in Shaker Heights, Ohio (a suburb of Cleveland), the son of Theresa (née Fetzer or Fetsko; Slovak: Terézia Fecková) and Arthur Samuel Newman, who ran a profitable sporting goods store. His father was Jewish and his mother, who practiced Christian Science, was born to a Slovak Catholic family at Ptičie (formerly Peticse) in the former Austria–Hungary (now in Slovakia).

Newman had described himself as Jewish, stating that, "it's more of a challenge". Newman's mother worked in his father's store, while raising Paul and his brother Arthur (who later became a producer and production manager).

Newman showed an early interest in the theatre, which his mother encouraged. At the age of seven, he made his acting debut, playing the court jester in a school production of Robin Hood. Graduating from Shaker Heights High School in 1943, he briefly attended Ohio University in Athens, Ohio, where he was initiated into the Phi Kappa Tau fraternity.

Newman made his Broadway theater debut in the original production of William Inge's Picnic, with Kim Stanley. He later appeared in the original Broadway productions of The Desperate Hours and Sweet Bird of Youth with Geraldine Page. He would later star in the film version of Sweet Bird of Youth, which also starred Page.

His first movie was The Silver Chalice (1954), followed by acclaimed roles in Somebody Up There Likes Me (1956), as boxer Rocky Graziano; Cat on a Hot Tin Roof (1958), opposite Elizabeth Taylor; and The Young Philadelphians (1959), with Barbara Rush and Robert Vaughn.

Newman appeared in a screen test with James Dean for East of Eden (1955). Newman was testing for the role of Aron Trask, Dean was testing for the role of Aron's fraternal twin brother Cal Trask. Dean won the part of Cal, while the role Newman was up for went to Richard Davalos. The same year Newman would co-star with Eva Marie Saint and Frank Sinatra in a live —and color —television broadcast of the Thornton Wilder stage play Our Town. In 2003 Newman would act in a remake of Our Town, taking on Sinatra's role as the stage manager.

Newman was one of the few actors who successfully made the transition from 1950s cinema to that of the 1960s and 1970s. His rebellious persona translated well to a subsequent generation. Newman starred in Exodus (1960), The Hustler (1961), Hud (1963), Harper (1966), Hombre (1967), Cool Hand Luke (1967), The Towering Inferno (1974), Slap Shot (1977) and The Verdict (1982). He teamed with fellow actor Robert Redford and director George Roy Hill for Butch Cassidy and the Sundance Kid (1969) and The Sting (1973).

He appeared with his wife, Joanne Woodward, in the feature films The Long, Hot Summer (1958), Rally 'Round the Flag, Boys!, (1958), From the Terrace (1960), Paris Blues (1961), A New Kind of Love (1963), Winning (1969), WUSA (1970), The Drowning Pool (1975), Harry & Son (1984) and Mr. and Mrs. Bridge (1990). They also both starred in the HBO miniseries Empire Falls, but did not have any scenes together.

In addition to starring in and directing Harry & Son, Newman also directed four feature films (in which he did not act) starring Woodward. They were Rachel, Rachel (1968), based on Margaret Laurence's A Jest of God, the screen version of the Pulitzer Prize-winning play The Effect of Gamma Rays on Man-in-the-Moon Marigolds (1972), the television screen version of the Pulitzer Prize-winning play The Shadow Box (1980) and a screen version of Tennessee Williams' The Glass Menagerie (1987).

Twenty-five years after The Hustler, Newman reprised his role of "Fast" Eddie Felson in the Martin Scorsese-directed The Color of Money (1986), for which he won the Academy Award for Best Actor.