Powell was born in Bekesbourne, Kent, and educated at The King's School, Canterbury and then at Dulwich College. He worked in a bank before becoming an actor and entering the film industry through working with Rex Ingram in France. He developed his skills directing 'quota quickies', sometimes making up to 7 films a year. In 1939 he met Emeric Pressburger whilst they worked together on The Spy in Black. Working together as co-producers, writers and directors in a partnership they dubbed "The Archers", they made nineteen feature films, many of which received critical and commercial success, and their best films are still regarded as classics of 20th century British cinema.

Although proponents would argue that Powell ought to rank alongside Hitchcock and Lean as one of the greatest British film directors, his career suffered a severe reversal after the release of the confronting psychological thriller film Peeping Tom in 1960 as a solo effort. The film was excoriated by British critics, who were offended by its Freudian overtones and challenged by its reflexive subtext, and Powell was ostracised by the film industry and found it almost impossible to work thereafter. His offence, it seemed, was to have made a horror movie that was genuinely horrific. However, his reputation was restored over the years, and by the time of his death he and Pressburger were recognised as one of the foremost film partnerships of all time - and cited as a key infuence by many noted film-makers such as Martin Scorsese and Francis Ford Coppola.