Deitch was born in Chicago, Illinois, the son of salesman Joseph Deitch and Ruth Delson Deitch. In 1929, the family moved to California, and Deitch attended school in Hollywood. He graduated from Los Angeles High School in 1942, and began working for North American Aviation, drawing aircraft blueprints. In 1943, Deitch was drafted and underwent pilot training before catching pneumonia and being honorably discharged in May of the following year.
Beginning his cartooning and animation career, Deitch contributed covers and interior art to the jazz magazine The Record Changer.
Deitch took a position at the animation studio United Productions of America (UPA) and later became the creative director of Terrytoons, creating such characters as Sidney the Elephant, Gaston Le Crayon, John Doormat, and Clint Clobber. Beginning in 1955, while working at UPA, Deitch wrote and drew the United Feature Syndicate comic strip The Real-Great Adventures of Terr’ble Thompson!, Hero of History, starring a courageous child in fantastical adventures. A skit about Terr'ble Thompson had been recorded by Little Golden Records, with actor Art Carney and bandleader Mitch Miller participating. That led to the daily strip, which ran from Sunday, October 16, 1955, to April 14, 1956.
In 1959, Deitch founded Gene Deitch Associates, Inc., which primarily produced television commercials. When client Rembrandt Films promised to fund Munro, an animated theatrical short Deitch wanted to create, Deitch relocated to the company's base in Prague, Czechoslovakia, in October 1959 (Today, Prague is now part of the Czech Republic). During the following decade, he collaborated with Rembrandt to produce Popeye cartoons for television with King Features, as well as 13 new Tom and Jerry shorts for MGM, despite Deitch's misgiving about the latter character, whom he has cited as the "primary bad example of senseless violence — humor based on pain — attack and revenge — to say nothing of the tasteless use of a headless black woman stereotype house servant." Deitch has stated that, being a "UPA man", he was not a fan of the Tom and Jerry cartoons, thinking they were "needlessly violent." However, after being assigned to work on the series, he quickly realized that "nobody took [the violence] seriously", and it was merely "a parody of exaggerated human emotions." He also came to see what he perceived as the "biblical roots" in Tom and Jerry's conflict, similar to David and Goliath, stating "That's where we feel a connection to these cartoons: the little guy can win (or at least survive) to fight another day." Most fans regard Deitch's shorts as the worst in the Tom and Jerry series; however, some fans wrote positive letters to him, stating that his Tom and Jerry shorts were their personal favorites. Deitch's short film Munro won an Academy Award for Animated Short Film in 1961, the first short composed outside of the United States to be so honored.
With producer William L. Snyder, Deitch co-produced directed a series of TV shorts of Krazy Kat for King Features from 1962 to 1964. The Bluffers, which was based on one of Deitch's ideas, was also co-produced by him. He directed the 1966 film Alice of Wonderland in Paris, and a one-reel animation film of The Hobbit in 1966, the first film ever made of a Tolkien story. Also in 1966, Deitch created a young girl adventurer in Terr'ble Tessie.
From 1968 until his retirement in 2006, Deitch was the leading animation director for the Connecticut organization Weston Woods/Scholastic, adapting children's picture books. His studio is located in Prague near the Barrandov Studios, where many major films were recorded. Deitch's memoir, For the Love of Prague, is based on his experience of being what he called "the only free American living and working in Prague during 30 years of the Communist Party dictatorship."
In 2003, Deitch was awarded the Annie Awards' Windsor McCay Award by ASIFA-Hollywood for a lifetime contribution to the art of animation.
Deitch met his first wife, Marie, when they both worked at North American Aviation, and they married in 1943. Their three sons, Kim, Simon, and Seth Deitch, are artists and writers for underground comix and alternative comics.
Some time after arriving in Prague in October 1959, Deitch met Zdenka Najmanová, the production manager at the studio where he worked. They married in 1964.