After graduation, he spent a year travelling through Italy, where he became a clown's apprentice. He then trained as an actor at East 15 Acting School on the post-graduate course 1982-83. Returning to Sheffield, he became an apprentice at the Crucible Theatre from 1985–88.

Daldry's fourth film was Extremely Loud & Incredibly Close, an adaptation of the book of the same name written by Jonathan Safran Foer, starring Tom Hanks, Sandra Bullock, Max von Sydow and introduced newcomer Thomas Horn. The screenplay was written by Eric Roth. The film received a nomination for Best Picture at the 84th Academy Awards and a nomination for von Sydow for Best Supporting Actor.

He was previously in a relationship with set designer Ian MacNeil for 13 years. They met at an outdoor production of Alice in Wonderland in Lancaster in 1988, and after settling in Camberwell, began collaborating on theatrical productions.

Daldry began his career at the Sheffield Crucible with Artistic Director Clare Venables. He also headed productions at the Manchester Library Theatre, Liverpool Playhouse, Stratford East, Oxford Stage, Brighton and the Edinburgh Fringe Festival. He was Artistic Director of the Royal Court Theatre from 1992–98, where he headed the £26 million development scheme. He was also Artistic Director of London's Gate Theatre (1989–92) and the Metro Theatre Company (1984–86). He is currently on the Board of the Young and Old Vic Theatres and remains an Associate Director of the Royal Court Theatre. He was the Cameron Mackintosh Visiting Professor of Contemporary Theatre for 2002 at St Catherine's College, Oxford.

Daldry made his feature film directorial debut with Billy Elliot (2000). His next film was The Hours, and it won Best Actress at the Academy Awards for Nicole Kidman. Recently, he directed a stage musical adaptation of Billy Elliot, and in 2009 his work on it earned him a Tony Award for Best Director of a Musical. He has also made a film version of The Reader (2008), based on the book of the same name and starring Kate Winslet, David Kross and Ralph Fiennes. The film won Best Actress at the Academy Awards for Kate Winslet. He has received Academy Award nominations for directing three of his five films.

Although Daldry has been married since 2001 to performance Artist and magazine Editor Lucy Sexton, with whom he has a daughter, Annabel Clare (born 2003), he describes himself simply as a gay man because people prefer it ("they don't like the confusion").

Daldry was planning to direct a film adaptation of Michael Chabon's Pulitzer Prize-winning novel The Amazing Adventures of Kavalier & Clay in 2005. In the ensuing three years, the project was cancelled and reinitiated several times, and in late 2006 was partially cast with Natalie Portman and Tobey Maguire. According to Chabon, production then stalled due to "studio-politics kinds of reasons that I'm not privy to," and as of April 2007 remains inactive.