Bruce was the second son of Sir william Waller Bruce, 10th Baronet (1856–1912) and his wife Angelica Lady Bruce (died 1917), daughter of General George Selby, Royal Artillery. Bruce was born in Ensenada, Baja California, Mexico, while his parents were on holiday there. His older brother was the author and adventurer Sir Michael Bruce. He was educated at the Grange, Stevenage and at Abingdon School, Oxfordshire. He served in France from 1914 as a lieutenant in the 10th Service Battalion of the Somerset Light Infantry and the Honourable Artillery Company, but was severely wounded at Cambrai the following year, with eleven bullets in his left leg, and spent most of the remainder of the war in a wheelchair.

He made his first appearance on stage on 12 May 1920 at the Comedy Theatre as a footman in Why Marry? In October of that year, he went to Canada as stage manager to Henry V. Esmond and Eva Moore, also playing "Montague Jordan" in Eliza Comes to Stay; upon returning to England, he toured acting the same part. He appeared constantly onstage thereafter, and eight years later started also working in silent films. In 1934, he moved to Hollywood, later setting up home at 701 North Alpine Drive, Beverly Hills.

Nigel Bruce was married from 1921 until his death to British Actress Violet Campbell (née Violet Pauline Shelton; 1892–1970) whom he always lovingly called "Bunny"; they had two daughters:

Nigel Bruce typically played buffoonish, fuzzy-minded gentlemen. During his film career, he worked in 78 films, including Treasure Island (1934), The Charge of the Light Brigade (1936), Rebecca (1940), and Suspicion (1941).

Bruce participated in two landmark films: Becky Sharp (1935), the first feature film in full Technicolor, and Bwana Devil (1952), the first 3-D feature. He uncharacteristically played a detestable figure in The Rains Came (1939) which became the first film to win an Oscar for special effects.

Bruce's signature role was that of Dr. Watson in the 1939-1946 Sherlock Holmes film series with close friend Basil Rathbone as Holmes. Bruce starred as Watson in all 14 films of the series and over 200 radio programs of The New Adventures of Sherlock Holmes. Although Watson often appears to be the older of the two main characters, Bruce was actually three years younger than his co-star Rathbone.

The Rathbone-Bruce film series lapsed with the death of producer-director Roy william Neill in 1946. Since then, most major modern adaptations of Arthur Conan Doyle's Sherlock Holmes stories, especially since the 1970s, have consciously defied the popular stereotype, and depicted Watson faithfully as a capable man of action.

Bruce died from a heart attack in Santa Monica, California in 1953, aged 58. He was cremated, and his ashes stored in the vault at the Chapel of the Pines Crematory in Los Angeles.

Bruce, known as "Willie" to his friends, was a leading member of the British film colony in Los Angeles, and was captain of the (mostly British) Hollywood Cricket Club. Unlike some of his contemporaries, and along with other British actors such as Basil Rathbone and Charlie Chaplin, Bruce maintained his British citizenship, despite long residence in the United States. He also retained his membership of London's Garrick Club and Buck's Club until his death. His final film, World for Ransom, was released posthumously in 1954.