Born to Jewish immigrants in Brooklyn as David Daniel Kaminsky, red-haired Kaye became one of the world's best-known comedians. In 1941 he appeared in the Broadway show, Lady in the Dark and performed the famous number "Tchaikovsky," by Kurt Weill and Ira Gershwin, in which he sang the names of a whole string of Russian composers at breakneck speed, seemingly without taking a breath.

He was propelled to what today would be called superstardom in 1948 when he appeared at the London Palladium music hall. According to The New York Times, he "roused the Royal family to shrieks of laughter and was the first of many performers who have turned English variety into an American preserve." Life magazine described his reception as "worshipful hysteria" and noted that the royal family, for the first time in history, left the royal box to see the show from the front row of the orchestra.

Kaye made his film debut in a 1935 comedy short subject entitled Moon Over Manhattan, although his feature film debut was Up in Arms (1944). He starred in several movies with actress Virginia Mayo in the 1940's, and is well known for his roles in films such as The Secret Life of Walter Mitty (1947), The Inspector General (1949), White Christmas (1954), Knock on Wood (1954), The Court Jester (1956), and Merry Andrew (1958). Kaye starred in two pictures based on biographies, Hans Christian Andersen (1952) about the Danish story-teller, and The Five Pennies (1959) about jazz pioneer Red Nichols. Several of his films included the theme of doubles, two people who look identical (both played by Danny Kaye) being mistaken for each other, to comic effect.

Kaye worked regularly in television in the 1960s and beyond. He hosted his own variety hour on CBS, The Danny Kaye Show, from 1963 to 1967. Kaye also did a stint as one of the What's My Line? Mystery Guests on the popular Sunday Night CBS-TV program. Later, Kaye also served as a guest panelist on that quiz show. Years later, Kaye also guest-starred in episodes of The Cosby Show and of the 1980's remake of The Twilight Zone.

Kaye's influence was felt beyond the entertainment world in the world of professional sports as well. Kaye was the original owner of the Seattle Mariners along with his partner Lester Smith, from 1977-81.

During the 1950s, Kaye also acted in a pantomime production of Cinderella, in Sydney, Australia, where he played the role of "Buttons", Cinderella's stepfather's servant, and also Cinderella's friend.

In many of his movies, as well as on stage, Kaye proved to be an able actor, singer, dancer and comedian, often having his comedic talents showcased by special material written by his wife, Sylvia Fine. He showed quite a different and serious side as Ambassador for UNICEF, and in one of his few dramatic roles in the memorable TV-movie Skokie, in which he played a Holocaust survivor. Before he died in 1987, Kaye also demonstrated his ability to conduct an orchestra during a comical, but technically sound, series of concerts organised for UNICEF fundraising. Kaye received two Academy Awards, an honorary award in 1955 and the Jean Hersholt Humanitarian Award in 1982.

Dame Joan Plowright, widow of the actor Lord Laurence Olivier, claimed that Olivier had a long homosexual relationship with Kaye while Olivier was still married to his second wife, Vivien Leigh. Kaye's widow denied these rumors.

Kaye died in 1987 from a heart attack, following a bout of hepatitis. He left a widow Sylvia Fine and a daughter Dena. He is interred in the Kensico Cemetery in Valhalla, New York. His grave is adorned with a bench that contains friezes of a baseball and bat, an aircraft, a piano, a flower pot, musical notes, and a hand.