Dalén was born in Stenstorp, a small village in Falköping Municipality, Västra Götaland County. He managed the family farm, which he expanded to include a market garden, a seed merchants and a dairy. In 1892 he invented a milk-fat tester to check milk quality of the milk delivered and went to Stockholm to show his new invention for Gustaf de Laval. de Laval was impressed by the self-taught Dalén and the invention and encouraged him to get a basic technical education. He was admitted to the Chalmers University of Technology where he earned his Master's degree and a Doctorate on leaving in 1896. Dalén was much the same type of Inventor as Gustaf de Laval, not afraid of testing "impossible" ideas, but Dalén was much more careful with the company economy. The products should have a solid market place before he introduced a new product.

His parents were Anders and Lovisa Dalén. He married Elma Persson in 1901. They had four children, two daughters and two sons;

In 1906 Dalén became chief Engineer at the Gas Accumulator Company (manufacturer and distributor of acetylene) and in 1909 when AGA was founded, he was appointed the managing Director for the company. During his life, AGA was one of the most innovative companies in Sweden and produced a large variety of products that grew every year. Finally in the early 1970s AGA was forced to reduce the number of markets it was involved in and concentrate on the production of gases for industrial use.

In 1909 he ascended to the position of Managing Director of the renamed company Svenska Aktiebolaget Gasaccumulator (AGA). AGA developed lighthouses using Dalén's products. In 1910 the company bought a large real estate in Lidingö and built a production plant that was completed around 1912, when they moved out from the facilities in Stockholm.

Early in 1912, Dalén was blinded in an acetylene explosion during a test of maximum pressure for the accumulators. Later the same year he was awarded the Nobel Prize for physics. Too ill to attend the presentation, Dalén had his brother, ophthalmologist Professor Albin Dalén of the Caroline Institute, stand in his place.

In 1922 he patented his invention of the AGA cooker. Most of the testing for the cooker was made in his private kitchen in his Villa Ekbacken that was built when AGA moved to Lidingö in 1912 but that he never actually had a chance to see with his own eyes. His family helped him with the development work, checking temperatures, airflow etc., as the development work proceeded.

The presentation speech praised the quality of sacrificing personal safety in scientific experimentation, a compliment that compared Dalén with Nobel himself. Despite his blindness, Dalén controlled AGA until his death in 1937. He received over 100 patents during his lifetime.