He is one of the founding members of the Upright Citizens Brigade improv comedy group and a former performer at Chicago's Improv Olympic, where he was a member of the improv group, The Family, whose members included Matt Besser, Ian Roberts, Neil Flynn, Miles Stroth, and Ali Farahnakian, and Child's Play Touring Theatre. While a member of the mainstage cast at Second City, he wrote and performed in that company's landmark revue, Pinata Full of Bees. In several politically charged sketches, McKay played characters like Noam Chomsky as a substitute kindergarten Teacher, and a hapless personnel manager trying to inform a corporate vice President (Scott Adsit) of some disastrous IQ test results without losing his own job. The latter performance was excerpted in Second City's 40th anniversary compilation.

McKay was born in 1968 in Philadelphia, Pennsylvania, to a cocktail waitress mother and a Bassist father. He graduated from Great Valley High School in Malvern, Pennsylvania, and attended Penn State and Temple University. McKay dropped out from the university a semester-and-a-half before he was set to earn his bachelor’s. He described it as, "settling with an imaginary degree”.

McKay originally auditioned for Saturday Night Live to be an onscreen performer, but did not make the cut. However, the scripts he submitted to the long-running Sketch show earned him a job as Writer from 1995 to 2001, including two seasons as head Writer. He also directed a number of short films for the show, including the original SNL Digital Shorts. McKay encouraged his Second City friend Tina Fey to submit some of her scripts to Saturday Night Live, and she later succeeded him as head Writer on the show. Though McKay was never an actual SNL cast member, he did make several on-camera appearances over the years and had a recurring role as an obnoxious audience member named "Keith" who would often shout insults at the Celebrity hosts during their opening monologue.

In 1996, he married Director Shira Piven, who directed the 2014 feature film Welcome to Me starring Kristen Wiig. They have two children. His brother-in-law is actor Jeremy Piven.

McKay has directed, and co-written with Will Ferrell, the feature films Anchorman: The Legend of Ron Burgundy (2004), Talladega Nights: The Ballad of Ricky Bobby (2006), Step Brothers (2008), The Other Guys (2010), Anchorman 2: The Legend Continues (2013). He has also directed an "alternate film" about Ron Burgundy that is considered a companion to Anchorman: The Legend of Ron Burgundy (2004) entitled Wake Up, Ron Burgundy: The Lost Movie (2004), which is made up mostly of alternative takes, deleted scenes and scrapped sub-plots from the original film strung together with a narrative.

He has directed a number of short films, including a good number of digital shots for Saturday Night Live, and the short videos The Landlord and Good Cop, Baby Cop for Funny or Die that star his daughter Pearl. Among the other short films he has directed include The Procedure (2007) starring Will Ferrell, Willem Dafoe and Andy Richter, Green Team (2008) starring Ferrell, John C. Reilly and himself, and the K-Swiss commercial, Kenny Powers: The K-Swiss MFCEO (2011), starring Danny McBride as Kenny Powers from Eastbound & Down, which he co-produces with Ferrell and has also directed an episode of ("Chapter 5", Season 1, Episode 5).

He also produced the films Land of the Lost (2009), The Goods: Live Hard, Sell Hard (2009), The Virginity Hit (2010), Casa de Mi Padre (2012), Bachelorette (2012), Tim and Eric's Billion Dollar Movie (2012), The Campaign (2012), Hansel & Gretel: Witch Hunters (2013), Tammy (2014), Welcome to Me (2014), Get Hard (2015), Sleeping with Other People (2015), Daddy's Home (2015), and The Boss (2016).

McKay was also one of the Writers (of the story) for the feature film, The Campaign (2012), and produced the film Daddy's Home (2015), the latter of which re-united The Other Guys stars Will Ferrell and Mark Wahlberg, and was directed by Sean Anders. He also wrote the screenplay for and directed The Big Short (2015), the feature film adaptation of Michael Lewis's book about the 2006–2010 financial crisis, and the build-up of the financial and credit bubble; the film starred Brad Pitt, Christian Bale, Ryan Gosling, Steve Carell, Melissa Leo, Marisa Tomei, and Byron Mann. He rewrote the script for the Marvel Studios feature film Ant-Man (2015), which Peyton Reed directed.

McKay directed the TV movie documentary Lifecasters (2013).

From November 2015 until October 2016, McKay hosted the science/comedy podcast Surprisingly Awesome with Adam Davidson, produced by Gimlet Media.

In 2016, he became attached to the superhero film Irredeemable based on the comic of the same name by Mark Waid.