Peterson was born outside St. Paul, Minnesota, where he grew up on a farm, the son of a federal government worker. He studied Business at the University of Minnesota. Peterson met his Future wife Gloria, also from the St. Paul area, at a Lutheran church camp at Green Lake in northern Minnesota at the age of 14. The two were married on September 20, 1952.

Peterson spent ten years working at the Jolly Green Giant Co., rising to eastern regional manager in charge of 17 food processing plants in the United States and Canada. However, the western regional manager was the son of the company's President, so in 1963 Peterson obtained a franchise from Muntz television, sold his home for US$10,000, which he put into the Business, and moved with Gloria to Portland on the advice of friends.

He opened his first store at Southeast 82nd and Foster Road in 1964. Peterson paid himself a salary of $100 a week and $50 a week to Gloria, who was the controller of the Business. In 1964, his first year in Business, Peterson had revenues of $300,000. By 1989, Peterson was selling $30 million per year. It was during this period that Peterson first achieved fame in Portland and throughout the Pacific North West.

Peterson's most famous commercials were his "Wake up! Wake up!" spots, which began airing in the mid-1970s. Peterson borrowed the idea from another retailer in Corpus Christi, Texas. Said Peterson, "Somebody told me about it and I followed it up. Ours was much more successful than theirs. They didn't have the store owner or a strong personality doing theirs." Peterson kept his stores open from 11 a.m. to 3 a.m. to accommodate customers inspired by the ad to visit his store late at night. The commercial ran less frequently in the 1980s, and last aired in 1988.

Peterson is widely known in Portland for writing and starring in his own low-budget commercials, for his trademark flattop haircut, catch phrases including "Free is a very good price" and referring to his store as "the happy place to buy." In the 1980s, Peterson was described by Oregonian columnist Margie Boulé as "arguably, the most recognizable man in Portland." The commercials were best known on the KPTV's Portland Wrestling programs and he often did pre-taped spots at the Portland Sports Arena (now Family Life Church) to advertise items from his store. He did so until the show was cancelled in 1991.

Starting Halloween 1986, Peterson offered visitors free cardboard masks with his face on it. All 5,000 went in a single year. In 1987, Peterson said, "We thought about doing a better mask, with a more realistic Tom Peterson on it. But then we thought, what if somebody robs a bank wearing one, and the witnesses say, 'It was Tom Peterson!' So we're sticking with the black and white cardboard."

Of his television spots, Peterson said in 1987: "It's probably the best-known commercial in town, but not the best-liked one." Peterson continued writing and starring in his own commercials into the early 2000s.

Peterson has cited as his most successful promotion the Tom Peterson watch, also featuring his face. Peterson said in 1988: "It particularly went well with college youth. They're a big thing on campus. I guess it's kind of a cult thing." North West native Kurt Cobain wore a Tom Peterson wristwatch, as did David Foraker, the attorney representing the creditors in Peterson's bankruptcy case.

Peterson is the subject of several works by Portland Artist Norman Forsberg. They include the 1989 painting "Sphinxface" and "Six Toms and a Bob", pairing Peterson's face with that of Bob the Weather Cat, then a fixture of KATU local news. Forsberg, on Peterson: "Most pop icons are entertainers or athletes. Whereas he's someone selling televisions. That says something."

In October 1990, after he had ceased running the "Wake up!" TV spots, Peterson debuted an alarm clock in the shape of a television set with his face in the center and voice as the alarm, saying: "Wake up! Wake up to a happy day!" Peterson said of the promotion at the time: "If you can put your face in 5,000 homes in Portland, it certainly can't hurt."

In August 1991 Peterson closed his Jantzen Beach location and in October filed for Chapter 11 bankruptcy protection, listing liabilities of $7.5 million owed to 283 creditors on assets of $2.7 million. He also faced lawsuits from suppliers and AT&T Commercial Finance. At the time of the filing, Peterson said: "I should have listened to my wife. She said, 'Don't buy Stereo Super Stores.' She was right." Peterson said sales shrank 16 percent in the company's 1991 fiscal year compared to 1990, and that his Business had been in the red every month but one in the 25 months since the buyout. Peterson said at the time: "They should have been called Stereo Stupid Stores."

In September 1992 Peterson reopened for Business at his original location, an 11,000-square-foot (1,000 m) showroom at 8130 Southeast Foster Road, under the name Tom Peterson & Gloria's Too! Peterson's son-in-law Robert Condon became President, daughter Kathy the store's accountant and Gloria Peterson resumed duties as chief financial officer. Peterson himself remained the primary public face of the company, and resumed his familiar advertising. Condon raised a portion of the new venture's seed money from the sale of Tom Peterson memorabilia, having bought hundreds of wristwatches and alarm clocks from the bankruptcy trustee, then reselling them at a profit.

In 1987, Z-100 radio personality Dan Clark and musician Roger Sause wrote a song, "I Woke Up with a Tom Peterson Haircut", which featured a singing part for Peterson. The station sold 5,000 copies of the single, donating the proceeds to charity, and continued running the song into the 1990s. On December 14, 1993, during a concert Kurt Cobain wore a Tom Peterson shirt.

Peterson has made three cameo appearances in the films of Gus Van Sant, and as of 1995 had appeared in more Van Sant films than any other actor. His first was Drugstore Cowboy, in which a Peterson commercial plays on the television. Van Sant later cast Peterson in a non-speaking role as a police chief in My Own Private Idaho and used another Peterson commercial in To Die For. Peterson also appeared in Mr. Holland's Opus, which was filmed in Portland. Van Sant related to the Los Angeles Times, "So many people responded that I decided to keep using him." Van Sant and Peterson have used the same video Editor, Wade Evans, and Van Sant bought his Magic Chef refrigerator from Peterson.

Other Peterson giveaways included hats, T-shirts, cups and coloring books. Peterson also turned a bus into a trolley that traveled a circuit around his parking lots on 82nd and Foster. To mark the tenth anniversary of Tom Peterson & Gloria's Too! and the couple's fiftieth wedding anniversary in September 2002, Peterson offered customers coffee mugs with photos of Tom and Gloria, fifty years ago and present day.

By 1995 Peterson and a staff of 18 were selling $5 million worth of household durables per year, having shown a profit in 23 of 25 years. As of 2002, Peterson was working "part time" 44 hours per week, half of what he once had put in, and booking $4 million in sales per year. In the mid-2000s, the Petersons sold their last remaining property at the corner of Southeast 82nd and Foster and moved the store to a side street a block away, just off 82nd Avenue. The final location closed on February 28, 2009.

During his bankruptcy, Peterson started a second Business as a motivational speaker, which he continued until 2001. Peterson lived with his wife in a one-story Craftsman-style home in Happy Valley, Oregon. He was a fan of upland bird hunting, specifically the chukar. In later years, he suffered from Parkinson's disease. He died on July 25, 2016 at the age of 86.

Tom Peterson’s face icon and name appear on several stores in the comic book Boris the Bear #2, published by Portland company Dark Horse Comics and created by Portland Artist James Dean Smith.