Egoyan was born to Joseph and Shushan Yeghoyan in Cairo, Egypt. He and his sister Eve Egoyan (who is now a concert pianist based in Toronto) were raised by their parents in Victoria, British Columbia, Canada. As a teenager, he became interested in reading and writing plays. Significant influences included Samuel Beckett and Harold Pinter. He graduated from Trinity College in the University of Toronto. Egoyan is now based in Toronto, where he lives with his wife, Arsinée Khanjian, an actress who appears in many of Egoyan's films, and their son, Arshile.

Egoyan has directed a dozen full-length films, several television episodes, and a few shorter pieces. His early work was based on his own material, and he received some notice for the film Exotica (1994), but it was Egoyan's first attempt at adapted material that resulted in his best-known work, The Sweet Hereafter (1997), which landed him an Academy Award nomination for Best Director. He also directed Sarabande featuring Khanjian and Lori Singer, a drama which flanks cellist Yo-Yo Ma's performance of Bach's Fourth Suite for Unaccompagnied Cello, as part of the latter's Inspired by Bach series for Sony Classical. The film Ararat (2002) also generated some publicity for Egoyan, as it was the first major motion picture to deal directly with the Armenian Genocide. Ararat later won the Best Picture prize at the Genie Awards (ironically, he failed to receive a Best Director nomination for the same film).

In 1999, he was made an Officer of the Order of Canada.