As a child, Ladd was nicknamed “Tiny” because of his diminutive, frail appearance. He overcame playground taunts by excelling at athletics, and he was a standout swimmer and runner by his teen years. Injuries dashed his hopes of competing in the 1932 Olympics, so Ladd turned his attention to acting and landed small parts in the 1932 Warner Brothers films Once in a Lifetime and Tom Brown of Culver. Success eluded him for many years, and he toiled away at bit parts throughout most of the 1930s. His ebullience at the birth in 1937 of his first child, Alan Ladd, Jr.—the future CEO of Metro-Goldwyn-Mayer (Metro-Goldwyn-Mayer, Inc.), Inc.—was short-lived; soon thereafter, Ladd's mother committed suicide in the presence of her son. It has been said that Ladd's jaded demeanour, so often evident in his screen performances, stemmed from this incident.

Ladd secured a few acting jobs in radio, and during this time he was “discovered” by talent scout and former actress Sue Carol. With her help, he landed several small parts in Hollywood films, including Pigskin Parade (1936), with Judy Garland (Garland, Judy); Great Guns (1941), with Laurel and Hardy; and Orson Welles (Welles, Orson)'s classic Citizen Kane (1941). Ladd divorced his first wife in 1941 and wed Carol the following year. Their two children, Alana and David, also became film actors.

In 1942 Ladd appeared as an evil paid gunman out for revenge in This Gun for Hire. His performance made him a star, and he was thereafter cast in leading roles in such quality films as The Glass Key (1942), Lucky Jordan (1942), Salty O'Rourke (1945), The Blue Dahlia (1946), and Two Years Before the Mast (1946). Ladd's humourless presence made him a natural for film noir mysteries, and his athleticism was well suited to westerns and swashbuckling epics. He was frequently cast opposite actress Veronica Lake, whose icy detachment complemented Ladd's cynicism, and the two became a leading screen couple of the 1940s. Ladd himself was consistently voted one of the top 10 box office personalities in the United States during this period.

In the 1950s Ladd pursued a diversity of roles so as not to be typecast as a detective or a brooding tough guy. He starred in many popular western features, the most notable being George Stevens (Stevens, George)'s Shane (1953). A landmark in American cinema, Shane exploited the elegiac myths of the Old West via a unique juxtaposition of gritty realism and painstakingly composed visual symmetry. It is widely regarded as Ladd's best film and greatest role. His other westerns from this decade include Drum Beat (1954), The Big Land (1957), and The Badlanders (1958).

Shane was to prove Ladd's last major box office success; in the remaining decade of his life, good roles were scarce and his problems with depression and alcohol increased. A self-inflicted gunshot wound nearly took his life in 1962, but he rallied to deliver one last performance in what was probably the best film of his later years, The Carpetbaggers (1964). In January 1964 he was found dead from cerebral edema brought on by a mixture of alcohol and sedatives. His death was ruled accidental.