He was born Julius Ullman in Denver, Colorado, the son of Hezekiah Charles Ullman (born September 1833) and Ella Adelaide Marsh (born 1850). His half-brother was John Fairbanks (born 1873); and his full brother was Robert Payne Ullman (March 13, 1882-February 22, 1948).

Doug's father, who was born in Pennsylvania to a Jewish family, was a prominent New York attorney. His mother (a Roman Catholic) was born in New York, and was previously married to a man named John Fairbanks, who left her a widow. She then married a man named Wilcox, who turned out to be abusive. Her divorce was handled by Ullman, who she later married.

In about 1881, Charles Ullman purchased several mining interests in the Rocky Mountains and relocated the family to Denver, where he re-established his law practice. Ullman abandoned the family when Doug was five years old, and he and Robert were raised by their mother.

Doug began acting on the Denver stage at an early age, doing amateur theatre. He was in summer stock at the Elitch Gardens Theatre, becoming a sensation in his teens. He attended East Denver High School, and was once expelled for dressing up the campus statues on St. Patrick's Day. He left during his senior year. He said he attended Colorado School of Mines, then Harvard University for a term. No record of attendance has been located, but an article about whether or not he attended Mines recounts a professor once saying Fairbanks was asked to leave because of a prank not long after he began.

Fairbanks moved to New York in the early 1900s to pursue an acting career. He worked in a hardware store and as a clerk in a Wall Street office before his Broadway debut in 1902.

On July 11, 1907 in Watch Hill, Rhode Island, he married Anna Beth Sully, the daughter of wealthy industrialist, Daniel J. Sully. They had one son, Douglas Elton Fairbanks (actor Douglas Fairbanks, Jr., who was born on December 9, 1909 and who died on May 7, 2000). The family moved to Hollywood in 1915.

Fairbanks signed a contract with Triangle Pictures and began working under the supervision of D.W. Griffith. His athletic abilities were not appreciated by Griffith, however, and he was brought to the attention of Anita Loos and John Emerson, who wrote and directed many of his early romantic comedies.

He met actress and businesswoman Mary Pickford at a party in 1916 and they began having an affair. In 1917, they, along with Charlie Chaplin, traveled across the U.S. by train selling war bonds. Pickford and Chaplin were then the two highest paid movie stars in Hollywood. Fairbanks set up his own production company, the Douglas Fairbanks Film Corporation. Within eighteen months of his arrival, Fairbank's popularity and business acumen raised him up to be the third highest paid. To curtail these stars' astronomical salaries, the large studios attempted to monopolize the distributors and exhibitors.

On December 1, 1918 in New Rochelle, New York, Beth won an interlocutory decree of divorce from Fairbanks, as well as custody of their son. The record of testimony referred to the co-respondent as "an unknown woman." The decree was made final March 5, 1919.

To avoid being controlled by the studios and to protect the art of movie making, Fairbanks, Pickford, Chaplin, and D.W. Griffith formed United Artists in 1919, which created their own distributorships and gave them complete artistic control over their movies and the profits generated.

Fairbanks was determined to have Pickford become his wife, but she was still married to actor Owen Moore. They were both concerned about bad publicity and the effect it could have on the moviegoing public, who might boycott their efforts at the theater should they marry each other. He finally gave her an ultimatum. She then obtained a fast divorce in the small Nevada town of Minden on March 2, 1920. Fairbanks leased the Beverly Hills mansion Grayhall and was rumoured to have used it during his courtship of Pickford. (Grayhall was subsequently owned by, among others, the financier Bernard Cornfeld.)

The couple were married March 28, 1920, by the pastor of Temple Baptist Church, at his residence on West Fourth Street in Los Angeles. Pickford's divorce from Moore was contested by Nevada legislators, however, and the dispute was not settled until 1922. Even though the lawmakers objected to the marriage, the public went wild over the idea of "Everybody's Hero" marrying "America's Sweetheart." The couple was greeted by crowds of up to 300,000 people in London and Paris during their European honeymoon, becoming Hollywood's first celebrity marriage.

During the years they were married, Fairbanks and Pickford were regarded as "Hollywood Royalty," and they were famous for entertaining at their Beverly Hills estate, Pickfair.

By 1920, Fairbanks had completed twenty-nine comedies, mostly with the same theme. The public wanted something new. He then had the inspiration of doing a costume picture, which were not popular with the public up to that point. He went ahead and took the chance, making The Mark of Zorro. It was a smash success and parlayed the actor into the rank of superstar. He made swashbuckling costume movies throughout the 1920s.

In 1921, he, Pickford, friend Chaplin, and others, helped organize the Motion Picture Fund to assist those in the industry who could not work, or were unable to meet their bills.