Born into a poor farming family, Chen won a scholarship to National Taiwan University and graduated with highest honours from its law department. He entered private practice and soon became one of Taiwan's leading attorneys. His first encounter with politics came when he defended eight protesters opposed to the Nationalist Party (Kuomintang; KMT), the island's ruling party, who had been charged with sedition. Chen lost the case but thereafter was associated with the opposition movement.

Chen first ran for public office in 1981 and won a seat on the Taipei City Council. In the mid-1980s he spent eight months in prison on charges of libeling a KMT official. He subsequently joined the proindependence Democratic Progressive Party (DPP). Chen later served in Taiwan's legislature (1989–94) before being elected mayor of Taipei in 1994. He was defeated in his bid for reelection in 1998, but the loss freed him to pursue the DPP's presidential nomination in 2000. His campaign stressed the importance of Taiwan's national identity, and, while the more strident members of his party called for strict independence, Chen himself chose his words carefully, trying to assuage China's concerns. Chen was well-received by voters, who elected him and ended the KMT's 55-year rule of Taiwan.

In October 2000 Chen halted construction of a nuclear power plant, angering members of the KMT-controlled legislature. In the ensuing political crisis, the country's economy faltered as investor confidence waned. Chen relented in February 2001, and work resumed on the power plant. His decision was unpopular with members of the DPP, who also disapproved of his vow not to seek independence as long as China did not threaten to attack the island.

By 2002 the relationship between Chen's government and China had soured over Chen's reluctance to develop closer economic ties with China and his return to proindependence rhetoric. As he prepared to run for reelection in 2004, Chen made further moves toward independence, including a redesign of the country's passport that used the word Taiwan on its cover. He was narrowly reelected in March 2004, the vote coming one day after he and his running mate, Vice President Annette Lu (Lu Hsiu-lien), were shot and slightly wounded while campaigning in Tainan.

In his second term Chen faced a number of corruption scandals involving himself as well as several aides and family members. Although he rejected growing calls for his resignation, Chen transferred many powers to the premier. He was constitutionally barred from running for a third term, and the DPP was easily defeated in the presidential elections in March 2008; Chen was succeeded by Ma Ying-jeou of the Nationalist Party. After leaving office, Chen became the focus of a graft investigation, and in November 2008 he was detained by authorities and jailed.