Castle was born in Wilmington, Delaware, the son of Louisa Johnston (née Bache) and James Manderson Castle, Jr. One of his maternal great-great-grandfathers was Virginia Senator John W. Johnston, and Castle's fifth great-grandfathers were founding fathers Benjamin Franklin and Daniel Carroll. Castle's father was a patent Lawyer for DuPont, a firm so central to the city that it was long known in Wilmington simply as "the company." After graduating from Tower Hill School in 1957, he attended Hamilton College in Clinton, Oneida County, New York. He earned a Bachelor of Science degree in economics from Hamilton in 1961. While at Hamilton, Castle was a brother of the Alpha Delta Phi Fraternity.

Following his admission to the bar, Castle returned to Wilmington and joined Connolly, Bove and Lodge, working as an associate (1964–1973) and later partner (1973–1975). A Republican, he served as Deputy Attorney General of Delaware from 1965 to 1966, and was elected to the Delaware House of Representatives in 1966. He served as a state representative for two years before winning a seat in the Delaware Senate, where he remained for eight years. He also served as minority leader from 1975 to 1976.

The district includes the entire state of Delaware and is the oldest intact surviving district in the nation. He was the longest-serving U.S. Representative in the state's history. Prior to his election to Congress, Castle served as a member of the Delaware General Assembly, starting in the State House of Representatives (1966–1967) and then followed by election to the State Senate (1968–1976). He was the 20th Lieutenant Governor of Delaware from 1981 to 1985, and the 69th Governor of Delaware from 1985 to 1992.

In 1976, Castle left the state legislature and returned to the full-time practice of law, founding his own firm with Carl Schnee (who was later nominated as U.S. Attorney for the District of Delaware by President Bill Clinton in 1999). He returned to politics in 1980, when he was recruited to run for Lieutenant Governor of Delaware by Governor Pete du Pont. He defeated Democratic state senator Thomas B. Sharp, with 59% to 40% of the vote. He served from 1981 to 1985, and headed panels on education and drunk driving.

Castle's centrist positions served him well in a state that trended increasingly Democratic during his tenure in the House. Delaware had long been reckoned as a bellwether, but has voted Democratic in every presidential election since 1992, due almost entirely to heavily Democratic New Castle County. At the same time, his centrist record made him the target of conservative groups such as Club for Growth, who ranked him the least conservative Republican in the U.S. House in 2008, and RemoveRINOs, who, in April 2010, named him the Ace of Spades on its most-wanted list.

Castle cosponsored the Stem Cell Research Enhancement Act. The bill proposed expanding the number of embryonic stem cell lines that are eligible for federally funded research, expecting that this funding would generate more research and ultimately greater progress in developing new treatments for a wide range of medical conditions. Presently, the only embryonic stem cell lines eligible for federal funded research were derived before August 9, 2001. This legislation removes that date restriction, along with proposing stronger ethical requirements. After successfully passing both the U.S. Senate and the U.S. House, it received U.S. President George W. Bush’s first presidential veto in July 2006.

In February 2004, Castle sponsored H.R. 3831 to reauthorize the assault weapons ban of 1994. The bill was co-sponsored by 11 Republican colleagues and 129 Democrats. In June 2008, Rep. Mark Kirk, R-IL, introduced H.R. 6257 to reinstate the ban, and Castle was one of the bill's four Republican co-sponsors. Both bills died in committee.

Castle was President of the Republican Main Street Partnership and was the co-chair of several Congressional caucuses, including the Diabetes Caucus, the Community College Caucus, the Biomedical Research Caucus and the Passenger Rail Caucus. He was also considered one of the most moderate Republicans in the U.S. House. In the wake of Tom DeLay's indictment in September 2005, liberal columnist E.J. Dionne named Castle as one of four lawmakers capable of leading an anticorruption reform of the Republican Party. Castle was a member of various moderate/liberal Republican Organizations, such as Republicans For Environmental Protection, The Republican Majority For Choice, Republicans For Choice and Christine Todd Whitman's Its My Party Too.

Castle suffered two minor strokes during the 2006 campaign, but fully recovered. Considering the general Democratic sweep of other offices, he won the election comfortably, but with a greatly reduced margin over previous years. Despite the increased Democratic sweep of the 2008 election, he, unlike many Republicans, managed to increase his margin of victory, winning over Democratic challenger Karen Hartley-Nagle by 23 points. Considering his moderate profile, popularity, and long history of Service to the state, his victory was not considered surprising. Castle appeared in the documentary, Keeping the Peace, which focused on Michael Berg's 'anti-war' campaign for Castle's congressional seat in 2006. It premiered at the Philadelphia Independent Film Festival in 2009 and won the Audience Award.

In 2010, Congressman Castle ran to be the Republican candidate to fill the seat of former Senator Joe Biden, who had become Vice President on January 20, 2009. Castle was defeated in the Republican primary on September 14, 2010, by Christine O'Donnell, the Tea Party favorite. The primary drew 57,000 voters, a small slice of the overall electorate. After the primary, Fairleigh Dickinson University's PublicMind twice polled Delaware voters, running a hypothetical match-up between Castle and the Democratic candidate, Chris Coons; in it, Castle beat Coons by a 21-point margin (54%–34%) and also had a favorable rating of 48% compared to O'Donnell's 34%. Castle refused to support O'Donnell in the Senate campaign against Coons. Coons went on to defeat O'Donnell decisively in the general election.

In June 2010, Castle was one of only two Republicans to vote in favor of the DISCLOSE Act, intended to limit spending on political campaigns by corporations in the wake of the Supreme Court's decision in Citizens United v. Federal Election Commission. The bill requires added disclosure for political spending by corporations and prohibits some corporate political spending.

A town hall style meeting organized by Castle to discuss health care reform with constituents was featured on the Drudge Report with the headline "VIDEO: Congressman's town hall erupts over Obama birth certificate...". The story was linked to a tape documenting a few minutes of the event and hosted on YouTube. The incident sparked discussion of the topic in relation to the moderate Republican congressman and commentators' surprise at the audience reaction. Castle was heckled and booed after calmly responding to a protester, "If you’re referring to the President there, he is a citizen of the United States." The incident has become a focus of attention in some evaluations of the period.