Gallagher was raised in Delaware where he participated on the high school swim team. In 1961, he entered the University of Miami with a partial athletic scholarship. After graduating, Gallagher enlisted in the United States Army with the 3rd U.S. Infantry Regiment. Gallagher was honorably discharged and returned to Miami to start a business career.
Gallagher married his second wife, Laura Wilson, in 1998. Wilson comes from a sixth-generation Florida family. The Gallaghers have a son, Charlie, born in 2000. Gallagher and his second wife became divorced in 2011.
Gallagher began his political career when he was elected to the Florida House of Representatives in 1974. He ran in the 111th district and defeated the Democratic nominee, attorney Alan Rosenthal, by 51% to 49%. He was re-elected in 1980, defeating John F. Cosgrove by 62% to 38%. He briefly ran for Governor of Florida in 1982 but dropped out early on after realising that incumbent Democrat Bob Graham would be re-elected. He was, defeating U.S. Representative Louis A. Bafalis in a landslide by 65% to 35%.
Gallagher was re-elected from the 117th district in 1982, defeating attorney Charlene Carres by 57% to 43%. His final race was in 1984, when he defeated real estate agent and former actor Seth Sklarey by 70% to 30%. In the House he served as Minority Whip from 1980 to 1982. In 1984, he proposed a 10-year freeze on state taxes and spending. He declined to run for re-election in 1986, deciding instead to enter the Republican primary for Governor.
In the election, he faced fellow State Representative Chester Clem, former U.S. Representative Louis Frey, Jr. and Tampa Mayor Bob Martinez. His running mate was State Representative Betty Easley. She had been running for Commissioner of Education but dropped out to pursue the office of Lieutenant Governor. Martinez finished first with 244,417 votes (43.80%) and advanced to a runoff with Frey, who came second with 137,967 votes (24.72%). Gallagher came third with 131,265 votes (23.52%) and Clem finished last with 44,409 votes (7.96%). Gallagher endorsed Martinez, who won the run-off and the general election. In September 1987, Martinez appointed Gallagher as the Secretary of the Department of Professional Regulation.
In 1988, Gallagher ran in a special election for the office of Treasurer, Insurance Commissioner and Fire Marshal of Florida to fill the last two years of the term of Democrat Bill Gunter, who had resigned to run for the U.S. Senate. He won the Republican nomination handily, taking 459,451 votes (76.48%) to Jeffrey L. Latham's 94,608 (15.75%) and Raphael Herman's 46,654 (7.77%). In the general election, he defeated Democratic State Senator Ken Jenne by 2,223,401 votes (53.47%) to 1,935,137 (46.53%). He and James C. Smith, who was elected Secretary of State of Florida, became the first Republicans to be elected to the State Cabinet since Reconstruction. Smith, who had been appointed to his office in 1987, was the first Republican to serve on the State Cabinet since Reconstruction. He was elected to a full four-year-term in 1990, beating Democratic State Senator George Stuart, Jr. by 1,965,216 votes (57.22%) to 1,469,541 (42.78%).
In 1994, Gallagher announced his second run for Governor of Florida. In the Republican primary, he faced former state Commerce Secretary (and future Governor) Jeb Bush, Florida Secretary of State James C. Smith, Florida Senate President Ander Crenshaw, former President of Florida Right to Life Kenneth L. Connor, physician Josephine A. Arnold and attorney Bob Bell. Bush came first with 411,680 votes (45.68%) and Smith came second with 165,869 votes (18.41%), enough to force a runoff, but he dropped out and endorsed Bush. Gallagher came third with 117,067 votes (12.99%), Crenshaw fourth with 109,148 (12.11%), Connor fifth with 83,945 (9.31%), Arnold sixth with 8,326 (0.92%) and Bell last with 5,202 (0.58%). Bush went on to narrowly lose the general election to incumbent Democratic Governor Lawton Chiles.
Out of office for four years, Gallagher ran for Commissioner of Education in 1998. Incumbent Republican Frank Brogan had been running for re-election but was tapped by Governor Jeb Bush to be his running mate in the 1998 election, which they won. Gallagher was unopposed for the Republican nomination and faced Democrat Peter Rudy Wallace, the former Speaker of the Florida House of Representatives in the general election. Gallagher won by 2,185,027 votes (56.54%) to 1,679,893 (43.47%).
Two years into his term, Gallagher announced that he was running for the United States Senate in 2000. Florida's "resign-to-run" law requires an incumbent office holder seeking another elective office to submit an irrevocable resignation from the office they currently hold unless that tenure would end anyway before they would assume the new position if elected. The candidate may designate the effective date of the resignation to be in the future, but it must be no later than the date that they would assume the new office. This compelled Gallagher to submit his resignation as Commissioner of Education early in 2000 when he began to campaign for the U.S. Senate seat. He chose January 3, 2001 as the effective date of his resignation, as that was the date new Senators would be sworn in. Democrat Bill Nelson, who had succeeded Gallagher as Treasurer, Insurance Commissioner and Fire Marshal, also filed his resignation as he joined the Senate race. Gallagher faced U.S. Representative Bill McCollum in the primary and attacked both McCollum and Nelson for their attendance records in their respective jobs. He campaigned on his support for the marriage penalty, lowering the cost of drug prescriptions for seniors, increasing spending on social security and abolishing the federal income tax. However, after just over a month in the race, Gallagher withdrew. He had difficulty fundraising and had less than one-third of the money that McCollum had. He was encouraged to drop out by Governor Bush, Republican Party of Florida Chairman Al Cardenas and others who believed that a divisive and expensive Senate primary would damage the eventual nominee for the general election campaign with Nelson.
As Gallagher's resignation could not be withdrawn, he instead ran for Treasurer, Insurance Commissioner and Fire Marshal again. As Nelson was resigning, a special election was taking place and following the withdrawal of State Senate President Toni Jennings, the Republicans lacked a top-tier candidate. State Representative Joe Arnall, who had been in the race for a week after Jennings pulled out, immediately withdrew in favour of Gallagher. After polls showed that Gallagher was favoured for the Republican nomination and was by far the strongest general election candidate, former State Representative and two-time Treasurer, Insurance Commissioner and Fire Marshal nominee Tim Ireland and State Representative Greg Gay also withdrew from the race, leaving Gallagher unopposed in the Republican primary. In the general election against State Representative John F. Cosgrove, Gallagher won easily, as he was predicted to do, taking 3,363,705 votes (59.01%) to Cosgrove's 2,336,117 (40.99%).
Following reforms made to the Florida Cabinet, certified to the Florida Constitution in 1998 and enacted in 2003, the office of Treasurer, Insurance Commissioner and Fire Marshal was merged with that of Comptroller, forming the Department of Financial Services controlled by the Chief Financial Officer of Florida. Gallagher was elected to the new office in 2002 without opposition.
In 2006, Gallagher made his fourth run for Governor, facing state Attorney General Charlie Crist in the Republican primary. Crist was the favorite to win the nomination and won in a landslide, taking almost double the votes of underdog Gallagher: 630,816 (63.98%) to 330,165 (33.49%). Crist went on to win the general election and took office in 2007 and Gallagher was succeeded as CFO by Democrat Alex Sink.
After his defeat, Gallagher became involved in charitable and business activities including founding and serving as chairman of Tom Gallagher Insurance Agency and serving on the board of advisers of The TRIAM Consulting Group, Inc. He considered running for Chief Financial Officer again in 2010 and was encouraged by some to run for the U.S. Senate in 2010 but he declined to do so. After Education Commissioner Eric J. Smith announced his resignation in March 2011, Gallagher applied to the Florida Board of Education for his old job. The Board enlisted the help of Ray and Associates to winnow down the twenty-six applicants to five that would be interviewed. Gallagher was not among them.