Hoffman became interested in theatre when he was in high school. Following studies at New York University's Tisch School of the Arts (B.F.A., 1989), he began working in the theatre in New York City and Chicago and on tour in Europe. His first notable movie role was in Scent of a Woman (1992), and later films, including Twister (1996), gained him further audience recognition. His big breakthrough came with his painfully emotional performance in P.T. Anderson's Boogie Nights (1997), which was set in the world of adult entertainment. Hoffman went on to add a number of noteworthy credits, among them Anderson's Magnolia (1999), The Talented Mr. Ripley (1999), and Almost Famous (2000); in the latter film he played real-life music journalist Lester Bangs. He continued his collaboration with Anderson in Punch Drunk Love (2002) and drew praise for his work in Spike Lee's 25th Hour.

In 2005 Hoffman appeared as Truman Capote in Capote. The film depicted Capote during the time he was researching what became his best-known book, In Cold Blood (1965). Already well known for his ability to immerse himself completely in his roles, Hoffman delivered a complex, honest performance that captured Capote's essence and mannerisms without caricaturing him. In addition to an Oscar for best actor, Hoffman earned several other awards, including Screen Actors Guild, British Academy of Film and Television Arts, Independent Spirit, and Golden Globe awards. Following Capote, Hoffman turned in another change-of-pace performance as the villain in Mission: Impossible III (2006). In 2007 he appeared in a series of movies, including Before the Devil Knows You're Dead, directed by Sidney Lumet (Lumet, Sidney); The Savages; and Charlie Wilson's War, in which he portrayed a real-life CIA agent who joins forces with a senator (played by Tom Hanks (Hanks, Tom)) to aid rebels fighting Soviets in Afghanistan in the 1980s. Hoffman later starred in Charlie Kaufman's abstruse drama Synecdoche, New York (2008), playing an insecure theatre director who moves to New York City and spends years attempting to stage a massive production. In Doubt (2008) he portrayed a Catholic priest suspected by a nun (played by Meryl Streep (Streep, Meryl)) of abusing children. The performance earned him an Academy Award nomination for best supporting actor.

In addition to his screen work, Hoffman continued to act on the stage, garnering Tony Award nominations for a revival of Sam Shepard (Shepard, Sam)'s True West (2000), in which he and costar John C. Reilly alternated roles, and a revival of Eugene O'Neill's Long Day's Journey into Night (2003). Hoffman also produced and directed, especially for the LAByrinth Theater Company in New York City, for which he served as co-artistic director. Television credits included the HBO miniseries Empire Falls (2005).