He was born in Chester, the son of a steel erector and an art teacher. He was brought up in Prescot, near Liverpool. He also attended Hilbre High School, West Kirby (near Liverpool) and played rugby at nearby Hoylake Rugby Club. After briefly attending Sixth Form at Calday Grange Grammar School he moved to London when he was 16 to join the National Youth Theatre, later securing a place at the Guildhall School of Music and Drama.

Craig's film career began with The Power of One in 1992, and he later gained wider recognition in the UK with a co-starring role in the critically-acclaimed BBC2 drama serial Our Friends in the North in 1996. Following a lighthearted introduction to international audiences as Angelina Jolie's rival and sometime love interest in Lara Croft: Tomb Raider (2001), he raised his profile in the United States in Sam Mendes' movie Road to Perdition (2002), with Tom Hanks, playing a weaselly murderer who hides behind his mobster father's shadow. Other leading film roles have included Sylvia (2003) with Gwyneth Paltrow and Enduring Love (2004) with Rhys Ifans. In 2005, Craig played a Jewish, South African-born Mossad agent in Steven Spielberg's controversial political thriller, Munich.

On October 9, 2005 the News of the World newspaper revealed that Craig had been having an affair with Sienna Miller, his co-star in Layer Cake (2005). Miller had recently been engaged to Jude Law, who had previously had an affair with his children's nanny in July.