Caesar was born to Eastern European Jewish immigrants in Yonkers, New York where his father ran a lunch counter where immigrant workers would gather. From them Sid learned to mimic many of the accents that he would use throughout his career. After graduating high school, he planned on a career in music, playing the saxophone. While he earned a reputation as a talented musician in the "Borscht Belt" in the Catskills, he also began performing comedy sketches, and became a sensation.

Caesar served in the Coast Guard during World War II, organizing entertainment for the enlisted men. This took him to Los Angeles, where he got a part in two films, Tars and Spars, based on a wartime comedy routine he did, and The Guilt of Janet Ames. By 1949 he entered the new medium of television, hosting The Admiral Broadway Review.

Television was a natural medium for Caesar. Over the next few years he hosted such hits as Your Show of Shows (1950-1954), Caesar's Hour (1954-1957) and Sid Caesar Invites You (1958). These shows, particularly Your Show of Shows, brought together some of the greatest comic talent of the day, including Imogene Coca, Nanette Fabray, Carl Reiner, and Howard Morris. Many prominent writers got their start writing the skits, including Mel Brooks, Neil Simon, Woody Allen, Mel Tolkin, and Larry Gelbart. Caesar is also responsible for starting the career of Jim Perry in the early 1960s, who went on to become a popular television host, producer and singer.

Caesar's life took a turn when his show Sid Caesar Invites You was cancelled in 1958. In his autobiography he confesses that he turned to alcohol and drugs to overcome the insecurity of having a successful career unravel. He did make several appearances on Broadway, starring in Little Me, on television (The Sid Caesar Show, 1963-1964) and in the movies, Stanley Kramer's star-studded comedy It's a Mad, Mad, Mad, Mad World (1963), Mel Brooks's Silent Movie (1976), and as "Coach Calhoun" in 1978's Grease, but even though he continues to work, he has never recaptured the glory of the Golden Age of Television.

He has been married to Florence Levy since July 17, 1943. He can speak several foreign languages, including German, French, Russian, Italian, and Japanese. He demonstrated these talents on an episode of Whose Line Is It Anyway, despite being in his 80s.