He was born I?ec (Itzek) Domnici in Ungheni, Ia?i County, Bessarabia, Romania, present day Moldova, was referred to as "Iz" in Hollywood, and was known to quip that his initials stood for "Interscholastic Algebra League".
Diamond emigrated with his family to the Crown Heights area of Brooklyn in the United States at the age of 9. There he studied at the Boy's High School, showing ability in mathematics, competing in the state Mathematics Olympiads in 1936-37, winning several gold medals.
Diamond completed his undergraduate studies at Columbia in 1941. There he studied journalism, publishing in the Columbia Daily Spectator under the pseudonym "I.A.L. Diamond". He was editor of the humor magazine Jester of Columbia, a member of the Philolexian Society, and became the only person to single-handedly write four consecutive productions of the annual revue, the Varsity Show. As a result, upon graduation he abandoned his plans to pursue his master's at Columbia and accepted a short-term contract in Hollywood.
A succession of limited-term contracts ensued, notably at Paramount Pictures where he worked on projects without ultimately receiving a writing credit. He then moved to Universal, where in 1944 he worked on his first credited feature script, Murder in the Blue Room. It was a year later, at Warner Brothers, that he achieved his first real success and consequent recognition with Never Say Goodbye in 1946. He worked at 20th Century Fox from 1951—55, eventually deciding to become independent.
In 1957 he began a collaborative relationship with Billy Wilder on the movie Love in the Afternoon. From there, the pair had a string of hits with Some Like It Hot; The Apartment (which won an Academy Award for Best Screenplay); One, Two, Three; Irma la Douce; the Oscar-nominated The Fortune Cookie; the sex comedy Kiss Me, Stupid; and The Private Life of Sherlock Holmes.
Some of these films feature characters engaged in never-ending but friendly squabbling: like Joe and Jerry in Some Like it Hot and Holmes and Watson in The Private Life of Sherlock Holmes. Diamond's widow claims that they were based on her husband's relationship with Wilder.
Diamond died in Beverly Hills, California in 1988.