He was born Percy James Patrick Kent-Smith in Dunoon, on the Cowal peninsula. In his youth, he trained for the priesthood, but gave this up and spent time working in the insurance industry. He worked in The Roundhouse box office for a time, where he was discovered by Ken Campbell.

He came to prominence as a member of the comedy act "The Ken Campbell Roadshow". His best known act was as a stuntman character called "Sylveste McCoy", whose stunts included putting a fork and nails up his nose and stuffing ferrets down his trousers. As a joke, the programme notes listed Sylveste McCoy as played by "Sylvester McCoy", and after a reviewer missed the joke and assumed that Sylvester McCoy was a real person, Kent-Smith adopted this as his stage name. Notable television appearances before he gained the role of the Doctor included roles in Vision On (where he played Pepe, a character who lived in the mirror), an O-Man in Jigsaw and Tiswas. McCoy also portrayed, in one-man shows on the stage, two famous movie comedians, Stan Laurel and Buster Keaton. He also appeared as Bowers in the 1985 television mini series about Robert Falcon Scott's last antarctic expedition, The Last Place On Earth,

He took over the lead role of Doctor Who in 1987 from Colin Baker, and remained until the series was shelved in 1989 (see List of Doctor Who serials). He played the Doctor in the 1993 charity special Dimensions in Time, and again in 1996, appearing in the Doctor Who television movie where he handed the role over to Paul McGann. In his first series, McCoy, a comedy actor, portrayed the character with a degree of clown-like humour, but script editor Andrew Cartmel soon changed that. The Seventh Doctor developed into a much darker figure than any of his earlier incarnations, manipulating people like chess pieces and always seeming to be playing a deeper game. McCoy generally approved of this, as it allowed him to play more of a dramatic role.

A distinguishing feature of McCoy's performances was his manner of speech. He used a slight Scottish accent, rolled his 'r's, and often placed emphasis on unusual syllables or words. This has the added (possibly intentional) effect of sounding a little alien, and wrong-footing the audience. Some viewers, however, took it as evidence of McCoy's limited acting ability. At the start of his tenure he used proverbs and sayings adapted to his own ends (eg. "There's many a slap twixt cup and lap" - Delta and the Bannermen), although this characteristic was phased out during the later, darker series of his tenure.

Although McCoy only appeared as the Doctor for twelve serials over three seasons (plus Search Out Science, Dimensions In Time, the television movie, and audio dramas), fandom treated him as the "current" Doctor from 1987 to 1996. This view can be argued not just because he was the last actor to play the role, but also due to the Seventh Doctor's continuing presence as the Doctor in original novels and comic strips. Accordingly, some consider him to have beaten Tom Baker's seven year record as the Doctor. However, using these criteria, McCoy's record is beaten by Paul McGann, whose Eighth Doctor appeared in various media from 1996 to 2005, although only on-screen once in the Doctor Who television movie.

McCoy's television roles since Doctor Who have included Michael Sams in the 1997 telemovie Beyond Fear, shown on the first night of broadcast of Channel Five. He has also returned to play the Seventh Doctor in a series of audio plays by Big Finish Productions.

He has also acted extensively in theatre in productions as diverse as pantomime and Molière. He played the role of Snuff in the macabre BBC Radio 4 comedy series The Cabaret of Dr Caligari.