Wallace entered the film Business while attending USC film school, starting as an art Director and film Editor for commercials and industrial films. While in school, he began collaborating with childhood friend and fellow student John Carpenter, working on Carpenter's Dark Star (1974), a low-budget, science-fiction comedy that began as a student film. In 1976, he worked as sound effects Editor and art Director on Carpenter's second film, Assault on Precinct 13. He continued working with Carpenter, serving as production designer and co-editor of Halloween (1978) and The Fog (1980). In addition to his behind-the-scenes duties for these last two films, Wallace also appeared in front of the camera: intermittently as The Shape (the masked Michael Myers in the closet scene) in Halloween, and in The Fog as several different ghosts; his voice was also featured in both films as TV/radio announcers.

Wallace's work in television was varied, including directing episodes of the cult TV show Max Headroom; the 1980s revival of The Twilight Zone; and Baywatch. At the height of television films popularity in the 1990s, Wallace directed several notable films including an adaptation of the Vincent Bugliosi novel And the Sea Will Tell (1991), The Comrades of Summer (1992), Steel Chariots (1997) and The Spree (1998).

In 1986, he performed the title song of Carpenter's film Big Trouble in Little China as part of the band The Coup de Villes, alongside Carpenter and another friend, Nick Castle.