Nighy was born in Caterham, Surrey, England, the son of Catherine Josephine (née Whittaker), a psychiatric nurse, and Alfred Martin Nighy, who managed a car garage and worked as a mechanic. He has two older siblings, Martin and Anna. Nighy attended the John Fisher School in Purley. He trained at the Guildford School of Acting, formerly known as The Guildford School of Dance and Drama.
After two seasons at the Everyman Theatre, Liverpool, Nighy made his London stage debut at the National Theatre in an epic staging of Ken Campbell and Chris Langham's Illuminatus!, which opened the new Cottesloe Theatre on 4 March 1977, and went on to appear in two David Hare premieres, also at the National.
He has starred in many radio and television dramas, notably the BBC serial The Men's Room (1991), and more recently the thriller State of Play (2003) and costume drama He Knew He Was Right (2004). He played Sam in the 1981 BBC Radio dramatization of The Lord of the Rings (where he was credited as William Nighy), and appeared in the 1980s BBC Radio versions of Yes Minister episodes.
He starred alongside Stephen Moore and Lesley Sharp in the acclaimed short radio drama Kerton's Story first aired in 1996. He also played a starring role in the 2002 return of Auf Wiedersehen, Pet, portraying crooked politician Jeffrey Grainger. He has also made a guest appearance in the BBC Radio 4 series Baldi.
Nighy's two most acclaimed stage performances were in National Theatre productions. Taking the leading male role in Tom Stoppard's Arcadia (1993), he played an unscrupulous university don in witty exchanges with Felicity Kendal, his famous ironic 'snicker' much in evidence; and he gave a virtuoso performance as a consultant psychiatrist in Joe Penhall's Blue/Orange (2000), for which he won an Olivier Award nomination for Best Actor, and which transferred to the West End at the Duchess Theatre the following year.
In 2003, Nighy played the role of the Vampire Elder Viktor in the American production Underworld and returned in the same role for the sequel Underworld: Evolution in 2006.
In February 2004, he was awarded the BAFTA Film Award for Best Supporting Actor for his role in Love Actually, and followed this up at the BAFTA Television Awards in April with the Best Actor award for State of Play. He also appeared in the comedy Shaun of the Dead.
In early 2004, the British tabloid press reported Nighy's partner as saying that he had been offered the coveted role of the Doctor in the 2005 revival of the BBC television series Doctor Who. He is alleged to have told reporters that he had considered but ultimately rejected the offer.
The editor of Doctor Who Magazine, Clayton Hickman, had earlier mentioned to the press that Nighy was the first choice of executive producer and writer Russell T. Davies. The role was accepted by Christopher Eccleston some weeks later and Davies subsequently claimed that Eccleston had always been the first choice for the role.