He caused an international sensation in 1931 with his portrayal of a serial killer who preys on little girls in the German film M. Later he became a popular featured player in Hollywood crime films and mysteries, notably alongside Humphrey Bogart and Sydney Greenstreet, and as the star of the successful Mr. Moto detective series.

Lorre was born as László Löwenstein into a Jewish family in Rózsahegy (Hungarian), Rosenberg (German), Kingdom of Hungary, part of Austria-Hungary, now Ružomberok, Slovakia. His parents were Alois and Elvira. When he was a child his family moved to Vienna where Lorre attended school. He began acting on stage in Vienna at the age of 17, where he worked with Richard Teschner, then moved to Breslau, and Zürich. In the late 1920s, the young 5 ft 5 in (165 cm) actor moved to Berlin where he worked with German playwright Bertolt Brecht, most notably in his Mann ist Mann. He also appeared as Dr. Nakamura in the infamous musical Happy End by Brecht and composer Kurt Weill, alongside Brecht's wife Helene Weigel and other impressive co-stars such as Carola Neher, Oskar Homolka and Kurt Gerron. The German-speaking actor became famous when Fritz Lang cast him as a child killer in his 1931 film M.

When the Nazis came to power in Germany in 1933, Lorre took refuge first in Paris and then London where he was noticed by Ivor Montagu, Alfred Hitchcock's associate producer for The Man Who Knew Too Much (1934), who reminded the director about Lorre's performance in M. They first considered him to play the assassin in the film, but wanted to use him in a larger role, despite his limited command of English, which Lorre overcame by learning much of his part phonetically.

Eventually, Lorre went to Hollywood where he specialized in playing wicked or wily foreigners, beginning with Mad Love (1935), directed by Karl Freund. He starred in a series of Mr. Moto movies, a parallel to the better known Charlie Chan series, in which he played a Japanese detective and spy created by John P. Marquand. He did not much enjoy these films — and twisted his shoulder during a stunt in Mr. Moto Takes a Vacation — but they were lucrative for the studio and gained Lorre many new fans. In 1939, Peter was picked to play the role that would eventually go to Basil Rathbone in Son of Frankenstein. Lorre had to decline the part due to illness.

In 1940, Lorre co-starred with fellow horror actors Bela Lugosi and Boris Karloff in the Kay Kyser movie You'll Find Out. Lorre enjoyed considerable popularity as a featured player in Warner Bros. suspense and adventure films. Lorre played the role of Joel Cairo in The Maltese Falcon (1941) and portrayed the character Ugarte in the film classic Casablanca (1942).

Lorre demonstrated a gift for comedy in the role of Dr. Einstein in Arsenic and Old Lace (filmed in 1941, released 1944). In 1946 he starred with Sydney Greenstreet and Geraldine Fitzgerald in Three Strangers, a suspense film about three people who are joint partners on a winning lottery ticket.

In 1941, Peter Lorre became a naturalized citizen of the United States.

After World War II, Lorre's acting career in Hollywood experienced a downturn, whereupon he concentrated on radio and stage work. In Germany he co-wrote, directed and starred in Der Verlorene (The Lost One) (1951), a critically acclaimed art film in the film noir style. He then returned to the United States where he appeared as a character actor in television and feature films, often spoofing his former "creepy" image. In 1954, he had the distinction of becoming the first actor to play a James Bond villain when he portrayed Le Chiffre in a television adaptation of Casino Royale, opposite Barry Nelson as an American James Bond. (In the spoof-film version of Casino Royale, Ronnie Corbett comments that SMERSH includes among its agents not only Le Chiffre, but also "Peter Lorre and Bela Lugosi.") Also in 1954, Lorre starred alongside Kirk Douglas and James Mason in the hit-classic 20,000 Leagues under the Sea. In the early 1960s he worked with Roger Corman on several low-budgeted, tongue-in-cheek, and very popular films.

A story is told that in 1956, both Lorre and Vincent Price attended Bela Lugosi's funeral. According to Price, Lorre asked him "Do you think we should drive a stake through his heart just in case?" However, according to Lugosi biographers Arthur Lennig and Gary Don Rhodes, neither actor attended Lugosi's funeral.

In 1959, Lorre appeared in the episode "Thin Ice" of NBC's espionage drama Five Fingers, starring David Hedison. He appeared in a supporting role in the 1961 film, Voyage to the Bottom of the Sea. In 1961, he was interviewed on the NBC program Here's Hollywood.