Pearce was born in Ely, Cambridgeshire, UK. His mother, Anne Pearce (born 1940), was from County Durham, England; she was a schoolteacher specialising in needlework and home economics. His father, Stuart Pearce (1932–1976), was a New Zealand-born RAF Squadron leader and a Hawker Siddeley Harrier test pilot.

Pearce attended Geelong College, a local private school, and was a member of the Geelong Society of Dramatic Arts (GSODA) Junior Players. At the age of 16, he was a competitive amateur Bodybuilder, leading to the title of Junior Mr. Victoria. He also took part in fencing. He lived in Box Hill North, Victoria in the late 1980s while working on the Australian drama series Neighbours.

Pearce transitioned to television when he was cast in the Australian soap opera Neighbours in 1985, playing the role of Mike Young for several years. Pearce also found roles in other television series such as Home and Away (1988) and Snowy River: The McGregor Saga (1993).

The director/producer/writer Frank Howson cast Pearce in his first three films, Heaven Tonight, Hunting, and Flynn, and paid for him to go to the Cannes Film Festival in 1991 for the premiere of the Howson-directed Hunting. The accompanying Howson-funded publicity campaign brought Pearce to the attention of the international film industry. He made his first major film breakthrough shortly after, with his role as a drag queen in The Adventures of Priscilla, Queen of the Desert in 1994. Since then, he has appeared in several US productions including L.A. Confidential, Ravenous, Rules of Engagement, Memento, The Count of Monte Cristo, and The Time Machine.

Pearce married his childhood sweetheart, Psychologist Kate Mestitz, in March 1997. In October 2015, Pearce confirmed he and Mestitz had ended their marriage after 18 years.

Pearce continues to perform in Australian films, such as The Hard Word (2002) and the critically lauded The Proposition (2005), written by fellow Australian Nick Cave.

In January 2009, Pearce returned to the stage after a seven-year absence. He performed in the Melbourne Theatre Company's production of Poor Boy, a play with music, co-written by Matt Cameron and Tim Finn.

In 2010, he appeared as David Prince of Wales, who became King Edward VIII, in the award-winning film The King's Speech. He is the eponymous lead in the Australian TV miniseries Jack Irish, an adaptation of the detective novels of author Peter Temple broadcast on the ABC network in 2012. In May 2012, Pearce was cast to star in David Michôd's The Rover. In 2013, Pearce portrayed the villain character Aldrich Killian in Iron Man 3.

On 18 September 2011, Pearce won the Primetime Emmy Award for Outstanding Supporting Actor in a Miniseries or Movie for his work in Mildred Pierce as Monty Beragon opposite Kate Winslet.

Next to acting, Guy has a lifelong passion for music and songwriting. He released his first album, Broken Bones, in November 2014. Pearce appeared in a documentary special celebrating Neighbours' 30th anniversary titled Neighbours 30th: The Stars Reunite, which aired in Australia and the UK in March 2015.

Pearce had a supporting role in Neil Armfield's romantic-drama film Holding the Man, as Dick Conigrave. The 2015 film stars Ryan Corr and Craig Stott, with supporting performances from Pearce, Anthony LaPaglia and Geoffrey Rush. Holding the Man was adapted from Timothy Conigrave's 1995 memoir of the same name.

Pearce and his Actress girlfriend Carice van Houten had their first child, son Monte, in August 2016.