Dafoe was born in Appleton, Wisconsin. One of seven children of Muriel Isabel (née Sprissler) and Dr. William Alfred Dafoe, he recalled in 2009: "My five sisters raised me because my father was a surgeon, my mother was a nurse and they worked together, so I didn't see either of them much." In high school, he acquired the nickname Willem. He was once expelled from high school for shooting a pornographic film.
Dafoe studied drama at the University of Wisconsin–Milwaukee, but left after a year and a half to join the experimental theater company Theatre X in Milwaukee, Wisconsin, before moving to New York in 1976. There he apprenticed under Richard Schechner, director of the avant-garde theater troupe The Performance Group, where he met and became romantically involved with Elizabeth LeCompte, 11 years his senior. She, with her former romantic partner Spalding Gray and others, edged out Schechner and created the Wooster Group. Within a year Dafoe was part of the company.
Dafoe, who would continue with the Wooster Group into the 2000s, began his film career in 1981, when he was cast in Heaven's Gate only to see his role removed from the film during editing. As Dafoe recalled of his first film experience, (in which he played a cockfighter):
I worked for Jeff Bridges' character in the story. I was there for three months and I worked a lot. It was the kind of thing where you were hired to play an unscripted character and then they developed these smaller characters. I had scenes and everything and was really enjoying it and then one day we were doing a lighting setup for a long time; basically eight hours standing in place, and a woman told me a joke in my ear and I laughed at a moment of silence. Cimino turned around and said, 'Willem step out,' and that was that. I was the lamb for sacrifice."
In 1982, he starred as the leader of an Outlaw motorcycle club in The Loveless, and then played a similar role in Streets of Fire (1984). In the mid-1980s, he was cast by William Friedkin to star in To Live and Die in L.A., in which Dafoe portrays counterfeiter Rick Masters. He became "very conscious" that he might be typecast as a villain, saying in 1998,
I really made a conscious effort to mix it up, not because in itself it's not the job of an actor to do all different things, but for me that's what I'm interested in. You've got to be careful because you've got to work with what you have, not just for vanity's sake, but I think the best part of being an actor sometimes is the opportunity to transform yourself superficially, and deeply. So, it's true in the beginning I started playing villains and I think that's pretty clear because if you don't conventionally look a certain way and you've got a certain kind of presence when you're young, then what's available to you is character roles and the best character roles when you're young tend to be villains. And, also, it's fun to be bad and the only problem is often villain roles are devices and they lack a certain depth. They're signs, they're signals and after a little while you want something to chew on and if you function in a film it's the same too often. I think what happens is you develop a language that distances you from a certain kind of flashpoint of inspiration and creativity and you may refine that and that may be your work, but I'm not so interested in that. I think the best work comes when you're unsure, when you're terrified, when you're off balance.
Dafoe would go on to gain his widest exposure up to that point playing the compassionate Sergeant Elias in Oliver Stone's Platoon. He enjoyed the opportunity to play a heroic role, and said the film gave him a chance to display his versatility. "I think all characters live in you. You just frame them, give them circumstances, and that character will happen."
In 1988, Dafoe starred in another film set during the Vietnam War, this time as CID Agent Buck McGriff in Off Limits. He has since become a popular character actor. He is often cast as unstable or villainous characters, such as the Green Goblin in Spider-Man and Barillo in Once Upon a Time in Mexico. Before that, he was briefly considered for the role of the Joker by Tim Burton and Sam Hamm for 1989's Batman. Hamm recalls "We thought, 'Well, Willem Dafoe looks just like The Joker.'" The role eventually went to Jack Nicholson.
Dafoe starred in the erotic drama Body of Evidence with Madonna. In 1991, he portrayed a Manhattan drug dealer in the Paul Schrader film Light Sleeper. Dafoe played an eccentric FBI agent in The Boondock Saints (1999) and a private investigator in American Psycho (2000). He was nominated for the Academy Award for Best Supporting Actor in 1986 for Platoon and 2000 for Shadow of the Vampire. He played a rare heroic film role when he provided the voice of Gill in the animated film Finding Nemo. Dafoe also played a heroic leading man in Triumph of the Spirit, Salamo Arouch, a Greek Jew who survived Auschwitz concentration camp through his prowess as a boxer. In 1998 he was the brother of Nick Nolte and son of James Coburn in another Schrader film, Affliction.
He worked briefly as a model in a 1990 Prada campaign. In 2004, Dafoe lent his likeness and voice for the James Bond video game Everything or Nothing as the villain Nikolai Diavolo, and starred as NYPD detective Stan Aubray in the thriller Anamorph (2006). From 2002-2007, he played the villain Green Goblin in the Spider-Man trilogy. In 2007 he was also a member of the jury of the 57th Berlin International Film Festival. In 2011, Dafoe began narrating a series of television commercials for the Greek yogurt company Fage. Additionally, the actor is featured in Jim Beam's "Bold Decisions" television ad campaign, which began airing April 2011.
Dafoe starred alongside Marina Abramović and his A Family Man co-star Gretchen Mol in the 2011 Manchester International Festival premiere of the play The Life and Death of Marina Abramović, and will play the role again in the 2013 Luminato Festival North American premiere of the play The Life and Death of Marina Abramović. He also appears at TimesTalks Luminato. Since 2010, Dafoe voiced Clarence the Birdseye polar bear mascot on the company's television commercials in the United Kingdom. Dafoe appeared as the devil in the Mercedes-Benz CLA 2013 Super Bowl ad in which Usher and Kate Upton also appear. Dafoe also starred in three short films for Hanneke Schutte, with Saving Norman winning the Jameson First Shot competition.
Dafoe played fictional author Peter Van Houten in the film adaptation of The Fault in Our Stars (2014). In April 2014, he was announced as a member of the main competition jury at the 2014 Cannes Film Festival. Dafoe played and voiced Ryuk in Death Note, the American adaptation of the Japanese manga of the same name. Dafoe has also been cast as Nuidis Vulko in Zack Snyder's Justice League (2017). In 2017, Dafoe played Gerhard Hardman in a 2017 film adaptation of Agatha Christie's detective novel Murder on the Orient Express, directed by and starring Kenneth Branagh.
Dafoe met director Elizabeth LeCompte at The Performance Group, and the two began a professional and personal relationship there and at its successor company, The Wooster Group. Their son, Jack, was born in 1982.
Dafoe married Italian actress, director, and screenwriter Giada Colagrande on March 25, 2005, a year after the two had met in Rome at the premiere of one of her films. Dafoe said in 2010, "We were having lunch and I said: 'Do you want to get married tomorrow?'" They did so the following afternoon at a small ceremony with two friends as witnesses. The two worked together on the film Before It Had a Name. The couple divide their time between Rome, New York City, and Los Angeles. He now holds both Italian and American citizenship.
Dafoe said in 2008 that he is no longer practising Vegetarianism. His brother, Donald Dafoe, is a transplant surgeon and researcher.
In June 2016, he stirred up controversy in Italy while visiting The Floating Piers on Lake Iseo. Dafoe was photographed on that very section while thousands of people were denied access. The local press suggested the closure might have been orchestrated to allow Dafoe to enjoy the installation without the crowds.
Camerimage2002: Won, "Special Award:For immense contribution to the art of film."
San Sebastián International Film Festival2005: Won, Donostia Award
Stockholm International Film Festival2012: Won, Stockholm Achievement Award
VGX (award show)2013: Nominated, Best Voice Actor
Karlovy Vary International Film Festival2016: Won, Crystal Globe for Outstanding Contribution to World Cinema