Dacko was born in the village of Bouchia, near Mbaïki in the Lobaye region, which was then a part of the French Equatorial African territory of Moyen Congo (Middle Congo) to Joseph Iniabodé and Marie Okolania. His parents belonged to the same ethnic group. A M'Baka (Ngbaka), he was a distant cousin of future rival Jean-Bédel Bokassa. Soon after Dacko's birth, his family moved to Boda, where his father worked in a store belonging to a European coffee planter in Bonini named Tancret. In 1937, his father converted to Catholic, which he decided to keep one wife and sent the others away, including his mother. In 1938, he was sent to live with his uncle, Jêrome Gaza in Mbaïki. He began primary school in Mbaiki, where his father worked as a plantation's night watchman. He continued his primary education in Bambari before being admitted to the Ecole normale of Mouyoundzi in Moyen Congo. Studying for a career in teaching, he became schoolmaster of a large primary school in the capital, Bangui in 1951.
Dacko took part in an experimental educational program promoted by the French colonial administration. Dacko was named principal of Kouanga College in 1955 and became a supporter of independence leader Barthélémy Boganda, who was from the same Ngbaka ethnic group as Dacko. In March 1957 Dacko presented himself as a candidate for legislative elections in Ubangi-Shari for the circumscription of Ombella-M'Poko and won a seat as a member of the "Territorial Assembly of Ubangi-Shari". When the first Council of Government of Ubangi-Shari was established that same year, Boganda named Dacko Minister of Agriculture, Livestock, Water and Forests, in which position he served from 14 May 1957 until 23 August 1958. Dacko then served as Minister of the Interior and Administrative Affairs from 23 August to 8 December 1958.
When the Territorial Assembly became the Legislative Constitutive Assembly on 1 December 1958, Dacko and his fellow Territorial Councilors became Deputies. Dacko remained in the government as the Minister of the Interior, Economy and Commerce (8 December 1958 – 30 April 1959). During 1959, Dacko succeeded Boganda as the main leader of the country when the latter died in a plane crash.
After independence on 13 August 1960, Dacko became Provisional President of the Republic (14 August–12 December 1960), and then, with the active French support against rival Abel Goumba, became the first President of the Central African Republic (12 December 1960 – 31 December 1965). In 1960, he also served as President of the Conference of Prime Ministers of Equatorial Africa.
Dacko began to consolidate his power soon after taking office in 1960. He retained the portfolio of Minister of Defense (17 August 1960 – 1 January 1966) and Keeper of the Seals (17 August 1960 – 2 January 1963) and amended the Constitution to transform his regime into a one-party state with a strong presidency elected for a term of seven years. On 5 January 1964, Dacko was elected in an election in which he ran alone.
During his first term as president, Dacko significantly increased diamond production in the Central African Republic by eliminating the monopoly on mining held by concessionary companies and decreeing that any Central African could dig for diamonds. He also succeeded in having a diamond-cutting factory built in Bangui. Diamonds eventually became the country's most important export and remain so today, even though at least half of the country's diamonds are smuggled out of the country. Dacko encouraged the rapid "Centralafricanization" of the country's administration, which was accompanied by growing corruption and inefficiency, and he expanded the number of civil servants, which greatly increased the portion of the national budget needed to pay salaries. The difficulty of securing enough revenues to pay a large number of bureaucrats who are often inefficient and corrupt has been a major problem for the country ever since.
Dacko was torn between his need to retain the support of France and his need to show that he was not subservient to France. In order to cultivate alternative sources of support and display his independence in foreign policy, he cultivated closer relations with the People's Republic of China. By 1965, Dacko had lost the support of most Central Africans and may have been planning to resign from the presidency when he was overthrown.
On the night of 31 December 1965 – 1 January 1966, General Bokassa carried out a successful coup d'état against Dacko and prevented the possible assumption of power by a rival, Colonel Jean Izamo, head of the national gendarme police force. Dacko, who belonged to the same Ngbaka ethnic group as Bokassa, was imprisoned, placed under house arrest in Lobaye, but then was released on 16 July 1969 and eventually named personal counselor of President Bokassa on 17 September 1976. When Bokassa's rule came under increasing criticism during the late 1970s, Dacko managed to leave for Paris where the French convinced him to cooperate in a coup to remove Bokassa from power and restore him to the presidency.
On the night of 20–21 September 1979, French paratroopers carried out Operation Barracuda, which overthrew Bokassa and restored Dacko to the presidency. In March 1981, Dacko was elected President of the Republic once again in a reasonably free multi-candidate election; his term began on 1 April. Dacko was regarded by many Central Africans as a puppet of the French and his right to rule was challenged, in particular, by Bokassa's former Prime Minister, Ange-Félix Patassé who, in addition to belonging to the largest ethnic group in the country, the Gbaya, had residential and kinship ties to other ethnic groups and was the most popular politician in the country. Dacko failed once again to satisfy either his people or France.
On 1 September 1981, Dacko was overthrown in a bloodless coup carried out by army chief of staff General André Kolingba, who may have had the support of local French security officers who are suspected of having acted without authorization by François Mitterrand's new Socialist government in France. Such allegations may never be substantiated, but Kolingba did subsequently enjoy a very close relationship with France and a presidential security team led by Colonel Mantion. Dacko, unharmed, later returned to politics to lead the Movement for Democracy and Development (MDD), a party opposing Kolingba. Dacko participated in the presidential elections of 1992 and 1993 and in the latter obtained 20.10% of the votes cast.
During Patassé's first and second presidential terms (1993–99 and 1999–2003), Dacko continued to participate actively in politics as a leader of the opposition. Dacko and Kolingba were the main leaders of the opposition, with Kolingba having more influence than Dacko. Dacko ran for president for the last time in the 1999 elections, coming in third place with 11.2% of the vote.
After General François Bozizé overthrew Patassé and proclaimed himself president, Dacko participated in the Dialogue nationale (National Dialogue) that began on 9 September 2003, but shortly thereafter, on 27 September, Dacko suffered an chronic asthma attack and heart disease. He headed to France to seek treatment, but during a stopover in Yaoundé, Cameroon on 7 November, he was taken to the General Hospital of Yaoundé where he died at 10 p.m. on 20 November. The Central African government declared a month of national mourning in his memory. On 13 December he was buried in Mokinda, near his residence.
Dacko was survived by his wife Brigitte, who bore seven sons and four daughters, including Bruno Dacko and Ruffin Molomadon. Dacko received many awards and honors during his lifetime, including Commander of the Central African Order of Agriculture (23 April 1963), Commander of the Central African Order of Academic Palms (26 June 1964). A major street is named after him, Avenue President David Dacko.