He was born in Sunderland, into a Jewish family with a Lithuanian background...the subject of his 1956 memoir, Two Worlds: An Edinburgh Jewish Childhood. He moved to Edinburgh while still a young child, about the end of World War I, where his father, Rev. Dr. Salis Daiches was a prominent rabbi. He studied at George Watson's College and won a scholarship to University of Edinburgh where he won the Elliot prize, and went on to Balliol College, Oxford where he became the Elton exhibitioner.

Daiches is the father of Jenni Calder, also a Scottish literary historian. His brother was the prominent Edinburgh QC Lionel Daiches.

During World War II, he worked for the British Embassy in Washington, DC, producing pamphlets for the British Information Service and drafting (and delivering) speeches on British institutions and foreign policy.

Daiches first published work was The Place of Meaning in Poetry, published in 1935. He was a prolific writer, producing works on English literature, Scottish literature, literary history and criticism as well as the broader role of literature in society and culture. His The Novel and the Modern World (1939) was well-received and his expertise on the modern period led to his co-editing The Norton Anthology of English Literature (1962). He also wrote the two-volume A Critical History of English Literature and edited the Penguin Companion to Literature - Britain and the Commonwealth (1971). He wrote biographical and critical works on Virginia Woolf, Robert Louis Stevenson, Robert Burns, D. H. Lawrence, John Milton, and Sir Walter Scott. He also wrote two autobiographical volumes, books on Scotch Whisky, the King James Bible, and the cities of Edinburgh and Glasgow, a biography of Bonnie Prince Charlie, and a volume of poetry.

Starting at the University of Edinburgh, he had a long and influential career teaching in the UK, the US and Canada. He taught or held visiting posts at Balliol College, the University of Chicago, Cornell University, Jesus College, Cambridge, Indiana University, the University of Minnesota, McMaster University in Canada, Wesleyan University in Ohio, and the University of California; besides setting up the English Department at the newly founded University of Sussex. From 1979 to 1984 he was President of the Association for Scottish Literary Studies and from 1980 to 1986 he was Director of the Institute for Advanced Studies in the Humanities at Edinburgh University.Daiches chaired the panel of judges for the Booker Prize in 1980.