De Mello was the oldest of five children born to Frank and Louisa née Castellino de Mello. He was born in Bombay, British India, on 4 September 1931. He was raised in a Catholic family and dreamed of one day joining the Jesuit order. As a teen, he entered the Society of Jesus in Bombay. He was ordained into the priesthood in March 1961.

In 1972, he founded the Institute of Pastoral Counselling, later renamed the Sadhana Institute of Pastoral Counseling, in Poona, India. After that he spent much time introducing people in the United States to Eastern spirituality, through stories and exercises.

De Mello died suddenly of a heart attack in 1987, aged 55, in New York City.

In 1998, 11 years after de Mello's death, the Congregation for the Doctrine of the Faith under the leadership of its Cardinal-Prefect, Joseph Ratzinger (who later became Pope Benedict XVI) conducted a review of de Mello's work and released a lengthy comment expressing appreciation but also theological concern that, while there was no explicit heresy, some might be misled into seeing Jesus not as the Son of God but as simply one who came to teach that all are children of God. The Indian magazine Outlook saw this as an attempt by Rome to undermine the clergy in Asia amid widening fissures between Rome and the Asian Church. DeMello's books are available in many Catholic bookshops in the West, but include the advisory that they were written in a multi-religious context and are not intended to be manuals on Christian doctrine.

De Mello's first published book, Sadhana – A way to God, was released in 1978. It outlined a number of spiritual principles and "Christian exercises in Eastern form" inspired by the teachings of Saint Ignatius. It popularized the notion of "awareness prayer" in the United States for his readers and for those who attended his lectures. Awareness prayer differs from centering prayer more in its method than its purpose: instead of focusing on a word, awareness prayer attends to a sensation, like our pulse or breathing. Other books published during DeMello's lifetime include The Song of the Bird, One Minute Wisdom and Wellsprings. The first two were collections of stories and the last a collection of exercises similar to Sadhana.