Dunne, the second of six children, was born in Hartford, Connecticut, the son of Dorothy Frances (née Burns) and Richard Edwin Dunne, a hospital chief of staff and prominent heart surgeon. His Irish Catholic family was wealthy (his maternal grandfather, Dominick F. Burns, founded the Park Street Trust Company); but, from his earliest days, Dunne recalled feeling like an outsider in the predominantly WASPish West Hartford.

After Dunne's studies at the Kingswood School and Canterbury School in New Milford, Connecticut, 'Nicky' Dunne...as he was known during his boyhood...attended Williams College and then served in World War II, including the Battle of the Bulge, where he received the Bronze Star for heroism, and Battle of Metz. Afterward, he moved to New York City,where he became a stage manager for the theater. He was later brought to Hollywood,by Humpfrey Bogart, who wanted Dunne to work on the television version of The Petrified Forest. He later went on to work on Playhouse 90 and became vice-president of Four Star Television. He hobnobbed with the rich and the famous of those days. In 1979, beset with addictions, Dunne left Hollywood and moved to rural Oregon, where he says he overcame his personal demons and wrote his first book, The Winners.

In November 1982, his daughter, Dominique Dunne, best known for her part in the film Poltergeist, was murdered. Dunne attended the trial of her murderer (John Thomas Sweeney, who was convicted of voluntary manslaughter and served, counting pre-trial incarceration time, 6½ years), and wrote the article "Justice: A Father's Account of the Trial of his Daughter's Killer" for Vanity Fair.

Dunne went on to write for Vanity Fair regularly, and fictionalized several real-life events, such as the murders of Alfred Bloomingdale's mistress Vicki Morgan and banking heir William Woodward, Jr., in several best-selling books. He eventually hosted the TV series Dominick Dunne's Power, Privilege, and Justice on CourtTV (later truTV), in which he discussed justice and injustice and their intersection with celebrities. Famous trials he covered included those of O.J. Simpson, Claus von Bulow, Michael Skakel, William Kennedy Smith, and the Menendez brothers. Dunne's account of the Menendez trial, "Nightmare on Elm Drive," was selected by The Library of America for inclusion in its two-century retrospective of American True Crime writing, published in 2008.

In 2005, California Congressman Gary Condit won an undisclosed amount of money and an apology from Dunne,who had earlier implicated him in the disappearance of Chandra Levy, an intern from his U.S. House of Representatives district, with whom he had been carrying on an affair. In November 2006, he was sued again by Condit for comments made about the former politician on Larry King Live on CNN, but the suit was eventually dismissed.

While rumored in early 2006 that he intended to cease writing for Vanity Fair, Dunne stated the opposite in a February 4, 2006, interview with talk show host Larry King. "Oh, I am at Vanity Fair. I'll be in the next issue and the issue after that. We went through, you know, a difficult period. That happens in long relationships and, you know, you either work your way through them or you get a divorce. And I didn't want a divorce and we've worked our way through and Graydon and I are close and he's a great editor and I'm thrilled to be there."

Dunne frequently socialized with, wrote about, and was photographed with celebrities. A Salon.com review of his memoir, The Way We Lived Then, recounted how Dunne appeared at a wedding reception for Dennis Hopper. Sean Elder, the author of the review, wrote: "But in the midst of it all there was one man who was getting what ceramic artist Ron Nagle would call 'the full cheese,' one guy everyone gravitated toward and paid obeisance to." That individual was Dunne, who mixed easily with artists, actors and writers present at the function. The final line of the review about Dunne quoted Dennis Hopper wishing he "had a picture of myself with Allen Ginsberg and Norman Mailer."