William J. Sanderson was born in Memphis, Tennessee, to an elementary school Teacher mother and a landscape designer father. He volunteered for the army when he was 18 and attended college after his discharge using the G.I. Bill. He holds Business (BBA, 1968) and law (J.D., 1971) degrees from the University of Memphis (then known as Memphis State University), though he did not take the bar exam.

Sanderson played Larry in Newhart from 1982 to 1990, famous for the catchphrase, "Hi. I'm Larry. This is my brother Darryl. This is my other brother Darryl."

As a guest, he has made appearances in television shows, and his credits include The Pretender ,The X-Files, Knight Rider, Married... with Children, Babylon 5, ER, Coach and Walker, Texas Ranger. He plays a key role in an audio dramatization of Ursula K. Le Guin's Vaster than Empires and More Slow in NPR's 2000X series. In 2001, Sanderson played the courageous bartender Dewey in the TNT film Crossfire Trail.

Sanderson returned to television playing E. B. Farnum in the HBO television series Deadwood from 2004 to 2006. His role is a tragicomic hotelier and first mayor of Deadwood. In 2008, Sanderson joined the cast of True Blood playing Sheriff Bud Dearborne. He later played "Oldham", the resident interrogation expert of the DHARMA Initiative in the 10th episode of the fifth season of ABC's series Lost.