Diels was born on January 23, 1876 in Hamburg, Germany, and moved with his family to Berlin when he was two years old. He studied in Berlin at Joachimsthalsches Gymnasium before attending the University of Berlin starting in 1895. While at university, Diels studied chemistry under Emil Fischer, eventually graduating in 1899.

Immediately after graduating from the University of Berlin, he was offered a position with the Institute of Chemistry at the school. He advanced quickly through the ranks at the school, eventually ending up as Department Head in 1913. He remained at the University of Berlin until 1915, when he accepted a position at the University of Kiel, where he remained until his retirement in 1945. It was during his time at Kiel, where he worked with Kurt Alder developing the Diels–Alder reaction, for which they were awarded the Nobel Prize in Chemistry in 1950. His work with Alder, a synthetic method which allows the synthesis of unsaturated cyclic compounds. This work was important in the production of synthetic rubber and plastic compounds.

Diels married Paula Geyer in 1909. The couple had five children together, three sons and two daughters. Two of his sons were killed in action during World War II. In his free time, Diels enjoyed reading, music and traveling. He died on March 7, 1954.