Paul John Kelly was born on 11 October 1947 in Sydney, New South Wales. He is the son of Joseph Kelly and Sybil (nee Mackenzie). He completed a Bachelor of Arts and Diploma of Education at the University of Sydney in 1969. He worked in the Prime Minister's Department in Canberra from 1969 to 1971 before changing to journalism. He is a Doctor of Letters from the University of Melbourne.

He joined the Canberra press gallery in 1971 and became chief political correspondent for The Australian from 1974 to 1975. From 1976 to 1978 he was chief political correspondent for the now-defunct Fairfax newspaper The National Times, then its deputy editor from 1978 to 1979. He became chief political correspondent for The Sydney Morning Herald from 1981 to 1984. He returned to The Australian and was its national affairs editor from 1985 to 1991, editor-in-chief from 1991 to 1996 and editor-at-large since 1996 to present.

Aside from journalism, Kelly has written books describing political developments starting with The Unmaking of Gough (1976) on the Australian constitutional crisis of 1975 and Prime Minister Gough Whitlam (later titled The Dismissal : Australia's Most Sensational Power Struggle : The Dramatic Fall of Gough Whitlam). He has written books on subsequent Prime Ministers, Bob Hawke (The Hawke Ascendency, 1984), Paul Keating (The End of Certainty, 1992) and John Howard (Howard's Decade, 2006). As from August 2010, his most recent book is The March of Patriots: The Struggle for Modern Australia (2009) which deals with economic and political developments under Keating and Howard as Australia entered the globalised age.

His book, The Dismissal was used as the basis of the television miniseries The Dismissal shown on Network Ten from 6 March 1983. Kelly is a political commentator on radio and television (including Insiders) and presented the Australian Broadcasting Corporation (ABC) TV documentary series, 100 Years — The Australian Story (2001) and wrote a book of the same title.

In November 1991, after the massacres at Santa Cruz (near Dili, East Timor), Kelly had supported Indonesian President Suharto and declared him to be a moderate with no alternative to his rule. Kelly's support for Suharto continued to 1998 and earned criticism from fellow journalist John Pilger who compared it to the appeasement of Hitler in the 1930s.

He is married to Margaret (nee Leckie). He was previously married to Australian Labor Party Federal Member of Parliament and Minister Ros Kelly (nee Raw) they had a son Joseph Kelly. He has another son, Daniel.