Peters was born in Baltimore, Maryland. He went to Severn School for High School and attended Cornell University, receiving a bachelor's degree in civil engineering in 1965, and a master's degree in 1966. He later studied business at Stanford Business School, receiving an M.B.A. and Ph.D.. In 2004, he also received an honorary doctorate from the State University of Management in Moscow.

From 1966 to 1970, he served in the United States Navy, making two deployments to Vietnam as a Navy Seabee, then later working in the Pentagon. From 1973 to 1974, he worked in the White House as a senior drug-abuse advisor, during the Nixon administration. Peters has acknowledged the influence of military strategist Colonel John Boyd on his later writing.

From 1974 to 1981, Peters worked as a management consultant at McKinsey & Company, becoming a partner and Organization Effectiveness practice leader in 1979. In 1981, he left McKinsey to become an independent consultant.

In 1990, Peters was honoured by the British Department of Trade and Industry (DTI) as one of the world's Quality Gurus.

In Search of Excellence was published in 1982, and became a bestseller, gaining national exposure when a series of television specials based on the book and hosted by Peters appeared on PBS. The primary idea espoused was that of solving business problems with as little business process overhead as possible, and empowering decision-makers at multiple levels of a company.

In his more recent books, Peters has encouraged personal responsibility in response to the "New Economy". Quoting from his book, Talent: Develop It, Sell It, Be It: "The harsh news: This Is Not Optional. The microchip will colonize all rote activities. And we will have to scramble to reinvent ourselves - as we did when we came off the farm and went into the factory, and then as we were ejected from the factory and delivered to the white-collar towers. The exciting news (as I see it anyway): This Is Not Optional. The reinvented you and the reinvented me will have no choice but to scramble and add value in some meaningful way."

In the December 2001 issue of Fast Company, Peters was quoted admitting that he had falsified the underlying data for In Search of Excellence. In an odd turn of events, however, he later insisted that this was untrue, and that he was the victim of an "aggressive headline."

Peters's latest book is The Little Big Things, released in March 2010.

Peters currently lives in West Tinmouth, Vermont with his wife Susan Sargent, and continues to write and speak about personal and business empowerment and problem solving methodologies. His namesake company is based in the UK.