Reed was born in Wimbledon, London, to sports journalist Peter Reed and his wife Marcia (née Andrews). He was the nephew of film director Sir Carol Reed, and grandson of the actor-manager Sir Herbert Beerbohm Tree by his mistress May Pinney Reed. He is alleged to be a descendent (through an illegitimate step) of Tsar Peter the Great of Russia.

After time in the British Army, serving in the Royal Army Medical Corps, Reed commenced his thespian career as an extra in films in the late 1950s. He had no acting training or theatrical experience.

Oliver Reed appeared uncredited in an early Norman Wisdom classic, The Square Peg 1958. And again with Norman Wisdom in another of his classic comedy films, The Bulldog Breed (1960), where Reed played the leader of a gang of teddy boys roughing up Norman in a cinema.

Reed got his first notable roles in Hammer films' Sword of Sherwood Forest (1960), The Two Faces of Dr. Jekyll (1960), Captain Clegg (1962), Pirates of Blood River (1962), and The Curse of the Werewolf (1961). Reed also starred in Paranoiac, and These Are the Damned. In 1964 he starred in the first of six films directed by Michael Winner, The System, (known as The Girl-Getters in the U.S.).

More Hammer film productions followed, such as The Brigand Of Kandahar (1965). He first collaborated with director Ken Russell in a biopic of Claude Debussy in 1965. In 1966 Reed played a mountain fur trapper, with co-star Rita Tushingham, in an action-adventure film The Trap with a soundtrack by British film composer Ron Goodwin.

Reed's presence could be seen in The Shuttered Room (1969), after which came another performance in the film Women in Love (1969), in which he wrestled nude with Alan Bates in front of a log fire. The controversial 1971 film The Devils, one of Reed's best acting roles, and the 1975 musical film Tommy, based on The Who's 1969 concept album Tommy and starring its lead singer Roger Daltrey followed .

In between those films for Russell, Reed played the role of Bill Sikes, alongside Ron Moody, Shani Wallis, Mark Lester, Jack Wild, Harry Secombe, in his uncle Carol Reed's 1968 screen version of the hit musical Oliver!. Reed played the title role in the 1969 Michael Winner comedy Hannibal Brooks, alongside an elephant named Lucy.

An anecdote holds that Reed could have been chosen to play James Bond. In 1969, Bond franchise producers Albert R. Broccoli and Harry Saltzman were looking for a replacement for Sean Connery, and Reed was mentioned as a possible choice for the role. Whatever the reason, Reed was never to play Bond. After Reed's death, the Guardian Unlimited called the casting decision, "One of the great missed opportunities of post-war British movie history".

Reed starred as Athos the musketeer in three films based on Alexandre Dumas's novels. First in 1973's The Three Musketeers, followed by The Four Musketeers in 1974, and fifteen years later with The Return of the Musketeers. He starred in a similarly historical themed film, Crossed Swords 1978, as Miles Hendon alongside Raquel Welch and a grown up Mark Lester who had worked with Reed in Oliver!. Reed returned to horror as Dr. Hal Raglan in David Cronenberg's 1979 film The Brood.

From the 80s onwards Reed's films had less success, his more notable roles being General Rodolfo Graziani in the 1981 film Lion of the Desert, which co-starred Anthony Quinn and chronicled the resistance to Italy's occupation of Libya during World War II; and as the middle aged Gerald Kingsland, who advertises for a 'wife' to live on a desert island for a year.

The 'wife' is played by Amanda Donohoe in Castaway (1986). He also starred in the Iraqi historical film Clash of Loyalties (al-Mas' Ala Al-Kubra) in 1982 where he played Lt-Col Gerard Leachman during the 1920 revolution in Iraq. His last major successes were Terry Gilliam's The Adventures of Baron Munchausen (1988) (as the god Vulcan), Treasure Island (1990) (as Captain Billy Bones), Funny Bones (1995).

His final role was the elderly slave dealer Proximo in Gladiator, in which he played alongside Richard Harris, an actor who Oliver admired greatly both on and off the screen. The film was released after his death in 2000 with some footage filmed after his death with a double digitally mixed with outtake footage. He was posthumously nominated for a British Academy Award for Best Supporting Actor for his performance in this film, and also for the Screen Actors Guild Award along with the rest of the principal players for Best Ensemble Cast.