Paternal grandmother Nina Picket, with whom Minnelli lived during his school days while his parents were touring their shows, descended from a line of teachers and civil servants, most notably early American educator Albert Picket. Albert Picket, reportedly once a student of Noah Webster's, conducted a girls' school in 1810s Manhattan and was an early member of the New York Historical Society. In 1811 he was an incorporator of The Society of Teachers of the City of New York. With his son John W. Picket he published an educational journal, The Academician, and a number of school books, including The Juvenile Expositor in 1816. After relocating to Cincinnati he was a founder of the Western Literary Institute and College of Professional Teachers, was a contemporary of william McGuffey (educator & author, McGuffey Readers) and Calvin and Harriet Beecher Stowe (author of Uncle Tom's Cabin) and played a role in establishing the public school system in the Mississippi and Ohio River valleys. In his later years he retired to Delaware, Ohio and died there in 1850.

His paternal grandfather Vincenzo Minnelli and great-uncle Domenico Minnelli, both Sicilian Revolutionaries, were forced to leave Sicily after the collapse of the provisional Sicilian government that arose from the 1848 revolution against Ferdinand II and Bourbon rule. Domenico Minnelli had been Vice-Chancellor of the Gran Corte Civile in Palermo at the time he helped organize the January 12, 1848 uprising there. After the Bourbon return to power Vincenzo reportedly hid in the catacombs of Palermo for 18 months before being successfully smuggled onto a New York-bound fruit steamer. While traveling as a piano demonstrator for Knabe Pianos, Vincenzo met his Future wife Nina Picket during a stop in Delaware, Ohio. Although there is no confirmation of Vincenzo working at Ohio Wesleyan University, he was indeed a music Teacher and Composer. Both the U.S. Library of Congress and the Newberry Library in Chicago have Vincenzo (aka Vincent) Minnelli compositions in their collections.

Minnelli's first job in the theater was at the Chicago Theatre where he worked as a costume and set designer. Owned by Balaban and Katz, the theater chain soon merged with a bigger national chain of Paramount-Publix and Minnelli sometimes found himself assigned to work on shows in New York City. He soon left Chicago and rented a tiny Greenwich Village apartment. He was eventually employed at Radio City Music Hall shortly after its 1932 opening as a set designer and worked his way up to stage Director – he was also tasked to serve as a color consultant for the original interior design of the Rainbow Room.

After leaving Radio City Music Hall, the first play Minnelli directed was a musical revue for the Shuberts titled At Home Abroad which opened in October 1935 and starred Beatrice Lillie, Ethel Waters, and Eleanor Powell. The revue was well received and enjoyed a two-year run. Minnelli later worked on The Ziegfeld Follies of 1936, Hooray for What!, Very Warm for May, and The Show is On. Minnelli's reputation grew and he was offered a job at MGM in 1940 by Producer Arthur Freed.

With his background in theatre, Minnelli was known as an auteur who always brought his stage experience to his films. The first film that he directed, Cabin in the Sky (1943), was visibly influenced by the theater. Shortly after that, he directed I Dood It with Red Skelton and Meet Me in St. Louis (1944), during which he fell in love with the film's star, Judy Garland. They had first met on the set of Strike Up the Band (1940), a Busby Berkeley film for which Minnelli was asked to design a musical sequence performed by Garland and Mickey Rooney. They began a courtship that eventually led to their marriage in June 1945. Their one child together, Liza Minnelli, grew up to become an Academy Award-winning singer and Actress. The Minnelli family is thus unique in that father, mother and child all won Oscars.

Minnelli's critical reputation has known a certain amount of fluctuation, being admired (or dismissed) in America as a "pure stylist" who, in Andrew Sarris' words, "believes more in beauty than in art." Alan Jay Lerner (of Lerner and Loewe) described Minnelli as, "the greatest Director of motion picture musicals the screen has ever seen." His work reached a height of critical attention during the late 1950s and early 1960s in France with extensive studies in the Cahiers du Cinéma magazine, especially in the articles by Jean Douchet and Jean Domarchi, who saw in him "a cinematic visionary obsessed with beauty and harmony", and "an Artist who could give substance to the world of dreams". Minnelli served as a juror at the 1967 Cannes Film Festival. The MGM compilation film That's Entertainment! showed clips from many of his films.

Though widely known for directing musicals, including An American in Paris (1951), Brigadoon (1954), Kismet (1955), and Gigi (1958), he also directed comedies and melodramas, including Madame Bovary (1949), Father of the Bride (1950), The Bad and the Beautiful (1952), Lust for Life (1956), Designing Woman (1957), and The Courtship of Eddie's Father (1963). His last film was A Matter of Time (1976). During the course of his career he directed seven different actors in Oscar-nominated performances: Spencer Tracy, Gloria Grahame, Kirk Douglas, Anthony Quinn, Arthur Kennedy, Shirley MacLaine and Martha Hyer. Grahame and Quinn won Oscars for their performances in one of Minnelli's movies. He received an Oscar nomination as Best Director for An American in Paris (1951) and later won the Best Director Oscar for Gigi (1958). According to Peter Bart in his book The Gross, Minnelli is among the most successful film Directors of all time and unquestionably the most successful Director in the 1940s and 50s, his films having 11 first-place finishes on Variety's opening release box office rankings. He was awarded France's highest civilian honor, Commandeur of the Legion of Honor, only weeks before his death in 1986.

On February 8, 1960, Minnelli received a star on the Hollywood Walk of Fame for his contributions to the motion pictures industry at 6676 Hollywood Boulevard.

Minnelli died in his Beverly Hills home, on July 25, 1986, aged 83, of emphysema and pneumonia, which had caused him to be repeatedly hospitalized in his final year. He reportedly also suffered from Alzheimer's disease. He was survived by his two daughters, two grandchildren, and his fourth wife, Lee (1909–2009). He is interred in Forest Lawn Memorial Park in Glendale, California.

For years, there was speculation in the entertainment community that Minnelli was gay or bisexual. A biography by Emanuel Levy, Vincente Minnelli: Hollywood's Dark Dreamer, claims evidence that Minnelli did, in fact, live as an openly gay man in New York prior to his arrival in Hollywood, where the town that made him a film legend also pressured him back into the closet. According to Levy: "He was openly gay in New York – we were able to document names of companions and stories from Dorothy Parker. But when he came to Hollywood, I think he made the decision to repress that part of himself or to become bisexual." Lester Gaba, a Retail display designer who knew Minnelli in New York, was reported to have frequently claimed having an affair with Minnelli, although the same person who related Gaba's claim also admitted that Gaba "was known to embroider quite a bit."