Nicholls is the middle of three siblings. He attended Barton Peveril sixth-form college at Eastleigh, Hampshire, from 1983 to 1985 (taking A-levels in drama and theatre studies (like his elder and younger siblings) along with English, physics and biology), and playing a wide range of roles in college drama productions. He attented Barton Peveril College, as did Colin Firth, whom he would later collaborate with in When Did You Last See Your Father?. He then attended Bristol University in the 1980s (graduating with a BA in Drama and English in 1988) before training as an actor at the American Musical and Dramatic Academy in New York.
Throughout his twenties, he worked as a professional actor, using the stage name David Holdaway. He played small roles at various theatres, including the West Yorkshire Playhouse and, for a three year period, at the Royal National Theatre.
His novels include Starter for Ten (2003), The Understudy (2005), and One Day (2009).
As a screenwriter, he co-wrote the adapted screenplay of Simpatico and contributed four scripts to the third series of Cold Feet (both 2000). For the latter, he was nominated for a British Academy Television Craft Award for Best New Writer (Fiction). He created the Granada Television pilot and miniseries I Saw You (2000, 2002) and the Tiger Aspect six-part series Rescue Me (2002). Rescue Me lasted for only one series before being cancelled. Nicholls had written four episodes for the second series before being told of the cancellation. His anger over this led to him taking a break from screenwriting to concentrate on writing Starter for Ten. When he returned to screenwriting, he adapted Much Ado About Nothing into a one-hour segment of the BBC's 2005 ShakespeaRe-Told season.
In 2006, his film adaptation Starter for 10 was released in cinemas. The following year, he wrote And When Did You Last See Your Father?, an adaptation of the memoir by Blake Morrison. He penned an adaptation of Tess of the D'Urbervilles for the BBC, which aired in 2008, and is now working on an adaptation of Far From the Madding Crowd for BBC Films. He has also adapted Great Expectations; the screenplay has been listed on the 2009 Brit List, an annual industry poll of the best unmade scripts outside of the United States.
In 2005 he wrote Aftersun for the Old Vic's 24-Hour Play festival. The 10-minute play starred James Nesbitt, Saffron Burrows, Catherine Tate and Gael García Bernal. Nicholls developed Aftersun into a one-off comedy for BBC One. It starred Peter Capaldi and Sarah Parish and was broadcast in 2006.