Petersen was born on 14 March 1941 in Emden. Emden is a north German community in East Frisia near the Dutch border, where the Ems River flows into the North Sea. From 1953 to 1960, Petersen attended the Gelehrtenschule des Johanneums in Hamburg. In the 1960s he was directing plays at Hamburg's Ernst Deutsch Theater. After studying theater in Berlin and Hamburg, Petersen attended the Film and Television Academy in Berlin (1966–1970). His first film productions were for German television, and it was during his work on the popular German Tatort (Crime Scene) TV series that he first met and worked with the actor Jürgen Prochnow — who would later appear as the U-boat captain in Petersen's famous Das Boot.
Petersen made his first theatrical feature film in 1974, the psychological thriller One or the Other of Us, based on the novel Einer von uns beiden by Horst Bosetzky and published anonymously under his pseudonym and starring Jürgen Prochnow. He next directed the 1977 film Die Konsequenz, a b/w 16 mm adaptation of Alexander Ziegler's autobiographical novel of homosexual love. In its time, the film was considered so radical that when first broadcast in Germany, the Bavarian network turned off the transmitters rather than broadcast it.
His next feature was the World War II epic Das Boot, released in early 1982. The film chronicles the experiences of a German submarine crew engaged in the "Battle of the Atlantic". Though not an immediate financial success, the film received highly positive reviews and was nominated for six Academy Awards, two of which (for Best Director and Best Adapted Screenplay) went to Petersen himself; he was also nominated for a BAFTA Award and DGA Award. The film starred Jürgen Prochnow as the U-boat Captain, who became a good example of Peterson's action characters, a man at war and who dares danger and fate at sea.
After The NeverEnding Story (1984), Petersen's first full-blown Hollywood effort (although filmed at the Bavaria Film Studios complex in Germany), Enemy Mine (1985), was not a critical and box office success. He finally hit his stride in 1993 with the assassination thriller In the Line of Fire. Starring Clint Eastwood as an angst-ridden presidential Secret Service guard, In the Line of Fire gave Petersen the box office clout he needed to direct another suspense thriller, Outbreak (1995), starring Dustin Hoffman. The 1997 Petersen blockbuster Air Force One did very well at the box office, with generally positive critical reviews from movie critics. For both Air Force One and Outbreak (but not for The Perfect Storm), Petersen teamed up with the German cinematographer Michael Ballhaus, who has also worked frequently with director Martin Scorsese.
By 1998, Petersen was an established Hollywood director, with the power to both re-release his classic Das Boot in a new director's cut and to helm star-studded action-thrillers. As such, he was originally considered for the first movie in the Harry Potter film series, Harry Potter and the Philosopher's Stone. Petersen pulled out of the running in March 2000.
Petersen's $160 million epic film Poseidon, a re-telling of the 1969 Paul Gallico novel The Poseidon Adventure (previously adapted for the 1972 disaster film), was released by Warner Bros. in May 2006. The film performed poorly in the US, barely cracking $60 million in domestic box office receipts by early August, although international sales surpassed $121 million.
Although hired to direct the film adaptation of Ender's Game by Orson Scott Card that was scheduled for release in 2008, he later "moved on" from the project. His potential projects include a live-action adaptation of the 2006 anime film Paprika and a film adaptation of the science fiction novel Old Man's War.
After a ten-year-hiatus, Petersen returned in 2016 as director of the heist comedy Vier gegen die Bank, his first German-language film since Das Boot in 1981.