McTiernan was born in Albany, New York, the son of Myra and John Campbell McTiernan Sr., a Lawyer and actor. He attended the Juilliard School before graduating with a Master of Fine Arts from the AFI Conservatory. In 1986, he wrote and directed his first feature film, Nomads, starring Pierce Brosnan (which was Brosnan's first lead role in a film). While being neither commercially successful nor critically acclaimed, it did land him the job of directing the science fiction action hit Predator, starring Arnold Schwarzenegger. In the wake of that film's success, he went on to direct two more hits – Die Hard in 1988 starring Bruce Willis and The Hunt for Red October in 1990 with Alec Baldwin and Sean Connery.

The budget for Predator was around $15 million, but it opened as #1 at the U.S. box office with a gross of $12 million on its opening weekend, and went on to gross nearly $100 million overall. For the calendar year 1987, it was second only to Beverly Hills Cop II. Initial critical reaction to Predator was negative, with criticism focusing on the thin plot. Metacritic, which assigns a weighted average score out of 100 to reviews from mainstream critics, rates the film with an average score of 36 based on 11 reviews from 1987, with the review opinions summarized as "generally unfavorable". However, in subsequent years critics' attitudes toward the film warmed, and it has appeared on a number of "best of" lists. The review aggregator site Rotten Tomatoes reports that 78% of 40 surveyed critics gave the film a positive review. Elvis Mitchell of The New York Times described it as "grisly and dull, with few surprises." Dean Lamanna wrote in Cinefantastique that "the militarized Monster movie tires under its own derivative weight." Variety wrote that the film was a "slightly above-average actioner that tries to compensate for tissue-thin-plot with ever-more-grisly death sequences and impressive special effects."

He directed Medicine Man (1992), about a medical researcher in a rainforest starring Sean Connery. Medicine Man was poorly received. Roger Ebert gave it one-and-a-half stars, saying that although the film had "some beautiful moments", it never really came together and had "a cornball conclusion". Entertainment Weekly said the story was "built around some very tired devices" and especially criticized the performance of the female lead.

He directed and co-produced Last Action Hero, a 1993 action-comedy vehicle for Arnold Schwarzenegger. The film received mixed to negative reviews from critics. Entertainment Weekly said it was "a stupid, generic slab of action bombast that keeps reminding us it's a stupid, generic slab of action bombast" and called it "a lead balloon of a movie". Variety called it a "a joyless, soulless machine of a movie, an $80 million-plus mishmash". Vincent Canby likened the film to "a two-hour Saturday Night Live sketch" and called it "something of a mess, but a frequently enjoyable one". Roger Ebert gave the film 2.5 stars out of 4, writing that despite some entertaining moments Last Action Hero more often "plays more like a bright idea than like a movie that was thought through".

During 1995–97, McTiernan was a Producer for several smaller projects, including at least three films that were not major releases – The Right to Remain Silent (a made-for-television film), Amanda, and Quicksilver Highway (a made-for-television film).

He directed The 13th Warrior (1999), a loose retelling of the tale of Beowulf starring Antonio Banderas, Diane Venora and Omar Sharif that was adapted from the novel Eaters of the Dead by Michael Crichton. The film did poorly at the box office, with a total loss estimated at $70–130 million. It received generally mixed-to-poor reviews. Roger Ebert gave the film one and a half stars out of four, saying that it "lumber[s] from one expensive set-piece to the next without taking the time to tell a story that might make us care." Conversely, James Berardinelli gave it three stars out of four, calling it "a solid offering" that "delivers an exhilarating 100 minutes". The outcome disappointed Sharif so much that he temporarily retired from film acting, saying "After my small role in The 13th Warrior, I said to myself, 'Let us stop this nonsense, these meal tickets that we do because it pays well.'" Sharif said it was "terrifying to have to do the dialogue from bad scripts, to face a Director who does not know what he is doing, in a film so bad that it is not even worth exploring." The Thomas Crown Affair, directed by McTiernan – a heist film remake starring Pierce Brosnan and Rene Russo, which opened to solid reviews and strong box office results was released later the same year.

He pleaded guilty to perjury and lying to an FBI investigator in regard to his hiring of the private investigator Anthony Pellicano in late 2000 to illegally wiretap the phone calls of two people, one of whom was Charles Roven, a co-producer of his dystopian science-fiction action film remake Rollerball (2002). He was incarcerated in federal prison from April 2013 to February 2014. During his imprisonment, he declared bankruptcy amidst foreclosure proceedings for his ranch residence and struggles to pay legal fees and IRS tax debt. His last completed film project was the mystery-thriller Basic, released in 2003.

McTiernan then directed the 2002 film Rollerball, a science fiction remake starring Chris Klein, Jean Reno, and LL Cool J. Rollerball was heavily panned by critics. Time Out's Trevor Johnson described it as "a checklist shaped by a 15-year-old mallrat: thrashing metal track, skateboards, motorbikes, cracked heads and Rebecca Romijn with her top off", and Ebert called it "an incoherent mess, a jumble of footage in search of plot, meaning, rhythm and sense". The film was a box-office flop, earning a worldwide total of $25.9 million compared to a production budget of $70 million. In 2014, the Los Angeles Times listed the film as one of the most expensive box office flops of all time.

On July 3, 2006, McTiernan's former wife, film Producer Donna Dubrow, filed suit against him for invasion of privacy and other claims arising from her belief that he hired Pellicano to wiretap her telephone during their divorce negotiations. The lawsuit continued over time, and was still pending as of October 2015.

In October 2008, the Ninth Circuit Court of Appeals vacated McTiernan's four-month sentence and ruled that Judge Fischer had erred and he was entitled to a hearing as to whether his plea could be withdrawn. The prosecution (and the judge) then agreed to allow McTiernan to withdraw his plea rather than proceed with such a hearing, and his plea was withdrawn on February 24, 2009.

With the case reopened, the prosecution was no longer bound by the prior plea agreement, and filed additional charges against McTiernan, charging him with two counts of lying to the FBI (one count for claiming he had hired Pellicano only in connection with his divorce proceedings and another for denying he had ever discussed wiretapping with Pellicano) and one count of committing perjury during the previous court proceedings by denying he had been coached by his attorney on what to say during his previous guilty plea hearing (a denial that he later stated in a declaration was false). After some adverse rulings on his attempted defense arguments, and facing the possibility of a prison sentence of more than five years on the various charges, McTiernan eventually entered another guilty plea (on all three counts) in a second plea bargain in 2010, conditioned on his plan to appeal the earlier rulings against his defense approach, and Judge Fischer sentenced him to one year in prison, three years of supervised probation, and a fine of $100,000. The judge said that the increased length of the prison sentence was related to the additional, more serious charge of perjury before her court, that McTiernan's crimes were more than just a momentary lapse of judgment, that he still did not seem to have really accepted responsibility for his actions, and that she would have issued an even more lengthy prison sentence if the prosecution had not recommended less. McTiernan was then released on bail pending an appeal of the adverse rulings.

On August 20, 2012, the Ninth Circuit Court of Appeals affirmed the district court judgment, but allowed McTiernan to address the U.S. Supreme Court regarding his attempt to suppress the recorded conversation before being required to report to prison. His defense tried to argue that Pellicano had made the recording for an unlawful purpose and that this made it inadmissible, but the district and appeals courts disagreed with that interpretation of the rules of evidence. On January 14, 2013, the Supreme Court declined to hear the case.

The bank holding the mortgage on the ranch said the filing was a bad-faith tactic only intended to stall the foreclosure proceedings, and requested the presiding judge to convert the case to a chapter 7 bankruptcy – a more drastic form of bankruptcy that would give the bank the power to demand the liquidation of assets rather than requiring them to negotiate with McTiernan.

McTiernan's lawyers countered by saying that his potential for generating additional Future income from new projects could enable him to eventually repay his debts, so a rapid liquidation of assets would be unnecessary and unjustified. In the bankruptcy proceedings, he identified two likely Future film projects with Hannibal Pictures, with working titles Red Squad and Warbirds, with large budgets and significant likely Future income and planned to star major well-known actors. On December 8, 2015, a judge ruled against McTiernan – agreeing with his debtors that his assets should be liquidated. It was reported that his ranch was likely to be sold and that an administrator would take over the management of his Future film royalty payments.

His last directorial project (as of December 2017) was the 2003 thriller Basic with John Travolta and Samuel L. Jackson. Reviews for Basic were mostly negative. Roger Ebert gave it one star out of four, saying it was "not a film that could be understood", and that "If I were to see it again and again, I might be able to extract an underlying logic from it, but the Problem is, when a movie's not worth seeing twice, it had better get the job done the first time through". Leonard Maltin's Movie Guide gave it two stars out of four and said the film "keeps adding layers of confusion so that it becomes less interesting as it goes along! The final 'twist' seems to negate the entire story, like a bad shaggy-dog joke."