Petersen graduated from Bishop Kelly High School in Boise, Idaho, in 1972. He was accepted to Idaho State University on a football scholarship. Originally intending to boost his grade point average at Idaho State, Petersen took an acting course which changed the direction of his life. He left school, along with his wife, in 1974 and followed a drama professor to Spain where he developed his acting skills as a Shakespearean actor. Petersen went back to Idaho with dreams of being an actor but could not hold down a job. He travelled to Chicago to live with relatives; he became active there in theater and earned his Actors' Equity card. He performed with the Steppenwolf Theatre Company and was a co-founder of the Remains Theater Ensemble which also included other prominent Chicago actors Gary Cole and Ted Levine.

His film career began with a small part in the 1981 film Thief. In 1986 he starred as Will Graham in Manhunter (later to be remade as Red Dragon).

In a move perhaps indicative of his career choices, Petersen is alleged to have passed on a part in Oliver Stone's Platoon, as it would have kept him in the Philippines, away from his family. Instead, he worked on the 1987 made-for-TV movie Long Gone.

In the 2000 release The Contender, Petersen played the role of Governor Jack Hathway, an unscrupulous candidate for Vice President following the death of the incumbent. He also appeared uncredited in the noir thriller Mulholland Falls as a character who finds himself on the violent receiving end of Los Angeles cops.

From 2000 to the present, Petersen gained his greatest fame starring as Dr. Gil Grissom in the successful CBS crime drama CSI: Crime Scene Investigation. Due to heart problems, Petersen's role on CSI is currently reduced to a minimum.

Petersen, who has one child from a previous marriage, married longtime girlfriend Gina Cirone in June 2003.