Elliott was born in London, England, the son of Nina née Mitchell and Myles Laymen Farr Elliott. He attended Malvern College, trained at the Royal Academy of Dramatic Art in London and afterward served as a radio operator and gunner in the Royal Air Force during World War II. In 1942, he was shot down over Denmark and spent the rest of the war in a P.O.W. camp in Silesia.
After the war, he made his film debut in Dear Mr. Prohack (1949). He went on to play a wide range of parts, often playing ineffectual and occasionally seedy characters, such as the journalist Bayliss in Defence of the Realm, the abortionist in Alfie, and the washed-up film director in The Apprenticeship of Duddy Kravitz.
He made many television appearances, notably in plays by Dennis Potter, including Follow The Yellow Brick Road (1972), Brimstone and Treacle (1976) and Blade on the Feather (1980). He took over for an ill Michael Aldridge for one season of The Man in Room 17 (1966) and also appeared in the series Thriller (1975).
In the 1980s he won three consecutive BAFTA awards as best supporting actor for Trading Places as Dan Aykroyd's kindly butler, A Private Function and Defence of the Realm, as well as an Academy Award nomination for A Room with a View. He also became familiar to a wider audience as the well meaning but ineffectual Dr. Marcus Brody in Raiders of the Lost Ark and Indiana Jones and the Last Crusade.
In 1988, Elliott was awarded the CBE for his services to acting. His career included many stage performances, including with the Royal Shakespeare Company.
Privately bisexual, Elliott was married twice, the first time to the British actress, Virginia McKenna for a few months in 1954, and the second an open marriage to actress Susan Robinson, with whom he had two children. His daughter Jennifer Elliott (born in 1964) died by suicide (hanging) in 2003. Denholm Elliott was diagnosed with HIV in 1987, and died in 1992 of AIDS-related tuberculosis at the age of 70 at his home on Ibiza, Spain. His widow Susan Elliott set up a charity, the Denholm Elliott Project, in his honour and collaborated on his biography. She also worked closely with the UK Coalition of People living with HIV and AIDS. Susan Elliott died on April 12, 2007 following a fire in her flat in London.