In 1964 he first visited the USA, where he enrolled in drama school. Small parts on stage followed for many years until his 1974 breakthrough performance as "Hamlet" at the Dubrovnik Summer Festival made him a star. Although he continued to appear in theatrical productions (notably, "Peer Gynt" and "Oedipus Rex"), Šerbedžija broke into films around the same time. Although many of the more than 40 features he has made in the '70s and '80s have been little-seen outside of Yugoslavia, a handful have received widespread distribution. His early work included the starring role in The Republic of Užice (1974).

Šerbedžija was born into a Croatian Serb family in the village of Bunić in the Lika region, PR Croatia, FPR Yugoslavia. In 1969, he graduated from the Academy of Dramatic Arts of the University of Zagreb and then worked as a theatre actor in the City Drama Theatre Gavella and at the Croatian National Theatre in Zagreb. While still a student, Šerbedžija started to play leading roles in films and theater productions. He is remembered as an outstanding Peer Gynt, Don Juan, Melkior Tresić, Oedipus, Hamlet, Leone Glembay and Richard III. Šerbedžija was among the top actors in the former Yugoslavia, as well as an esteemed acting Teacher at the Universities of Zagreb and Novi Sad.

He had various notable roles in Yugoslav film, among others in U gori raste zelen bor (1971), Variola Vera (1981), Kiklop (1982), Život je lep (1985). He was also among the leading actors in several TV series, such as in Prosjaci i sinovi (1971), U registraturi (1976), Nikola Tesla (1977), Putovanje u Vučjak (1986).

Šerbedžija was married to Ivanka Cerovac, but they divorced in 1987. They have a son, film Director Danilo Šerbedžija (b. 1971) and a daughter, Actress Lucija (b. 1973). Šerbedžija met his second wife, Lenka Udovički, the sister of Serbian Politician Kori Udovički, in Subotica in 1990 and they married in 1991.

It was probably not until his turn as the captain interrogating a woman who rescued hundreds of children from the Holocaust in Hanna's War (1988) that he was noticed in the West.

In the early 1990s, during the course of the Yugoslav wars, he acted in a few films from various parts of the former Yugoslavia, including the Macedonian film Before the Rain in 1994. With the dissolution of Yugoslavia in the early 1990s, he and his family moved to Ljubljana, Slovenia to avoid the war. Šerbedžija then also acted in various western European films before he emigrated to the United States.

His parents left Vinkovci as Serb refugees for Belgrade in 1991, due to Croatian War of Independence. His mother died in 1999, while his father still lives in Belgrade.

In 1992, while at a club in Belgrade, an intoxicated youth swore at him, calling him "Serb traitor", then shot his gun in the air. The youth himself was from Lika, as was Šerbedžija. He then took his wife and at the time, only daughter Nina, and left Zagreb and Belgrade, and settled in Ljubljana, Slovenia.

Šerbedžija is also known for his poetry readings and has released four albums. On the London stage, he won critical praise for his work in Corin Redgrave's Moving Theatre Company staging of "Brecht in Hollywood" (1994).

Šerbedžija founded the Ulysses Theater with Borislav Vujčić on the Brijuni islands, where he also directs and acts in most plays. The theater was founded in 2000 and has been very successful so far.

In 2001, he starred in a television production of Rodgers and Hammerstein's classic musical South Pacific as French plantation owner Emile de Becque. He also appeared in the BBC spy-thriller show Spooks for one episode as a villain. In 2005 he played Captain Blake in Rupert Wainwright's remake of The Fog, and had a supporting role in the NBC science fiction series Surface. In 2007 he played Athos Roussos in Jeremy Podeswa's feature film adaptation of Anne Michaels' novel Fugitive Pieces.

He is perhaps most often recognised by world audiences for his supporting roles in Hollywood films such as Mission: Impossible 2, Mighty Joe Young, The Saint, Eyes Wide Shut, Snatch, EuroTrip, The Quiet American (2002), Shooter, and a cameo in Batman Begins, often varying between sinister villains or trusting friends. He was asked to reprise his cameo role in The Dark Knight, but declined. He co-starred in Space Cowboys, wherein he was billed as "Rade Sherbedgia".

On 26 May 2009, Šerbedžija announced that he had been cast in Harry Potter and the Deathly Hallows – Part 1 as the famous foreign wandmaker Gregorovitch, a 'brief but very important' role. He began filming in November 2009. He announced his casting at a press conference for Fugitive Pieces, and he added that he knew he had the role six months before.

He lives in Rijeka (as of January 2011) together with his wife Lenka.

In 2014, Šerbedžija appeared in six episodes of Downton Abbey as Prince Kuragin, a Russian exile and long-ago lover of the Dowager Countess Violet Crawley, portrayed by Dame Maggie Smith.