To distinguish himself from fellow actor Tony Leung Ka-fai, he is known colloquially in Hong Kong as "Little Tony", while Tony Leung Ka-fai is known as "Big Tony", nicknames which correspond to the actors' respective physical statures.

Leung is a Toisanese-Chinese born in Hong Kong, though his family came from Taishan, Guangdong, China. Leung's early childhood was punctuated with parents' quarrels and arguments about money. A mischievous boy in his early years, Leung's personality changed when his father, a chronic gambler, left the family when he was eight; he and his younger sister were brought up single-handedly by their mother.

Leung became a reticent, quiet child. He has said that his childhood experiences paved the way for his acting career, which allows him to openly express his feelings: "You don't know what happened, just one day your pop disappears. And from that day on I try not to communicate with anyone. I'm so afraid to talk to my classmates, afraid that if someone says something about family I won't know what to do. So I became very isolated. So that's why I love acting, because I can express all my feelings the way I couldn't for so long." . "I'm a quiet person. And then when I went to TV it all came out; I cried and I wasn't ashamed. The audience thinks it's the character's feelings, but really it's my feelings, all coming out in a rush."

Leung's mother worked hard to keep him attending a private school, but even so, Leung had to quit school at the age of 15 due to financial difficulties. As an adolescent he behaved himself and remained very close to his mother. During a DVD interview on the making of Hero, he says that he sees his mother as his definition of a "hero[ine]" for having brought up two children alone.

After quitting his studies, Leung worked in a variety of jobs, first as a grocer's runner at his uncle's shop, then a showroom salesman in a Hong Kong shopping centre. He met actor and comedian Stephen Chow who influenced his decision to become an actor and remains a good friend.

In 1982 he passed the training courses of television channel TVB. Due to his boyish looks, TVB cast him as host of a children's programme, 430 Space Shuttle. Leung enjoyed comedies during his television years; it was for these he became well known. So, in the 1980s, he was named as one of "TVB's Five Tigers" (their five up-and-coming male TV stars) along with Andy Lau, Felix Wong , Michael Miu and Kent Tong. Leung starred in the highly successful Police Cadet TV serial in 1984 (later named Police Cadet 84 to distinguish it from subsequent sequels). He played an outgoing young man who decides to become a police officer; Maggie Cheung, who also started her career at the same time, played a shy bookworm, Leung's upstairs neighbour and love interest. Since then they have worked together on The Yangs' Saga (1985), Days of Being Wild (1991), Ashes of Time (1994), In the Mood for Love (2000), Hero (2002), and 2046 (2005). Interviewed by Wong Kar Wai, Leung said that he considered Maggie to be his alter ego. "Maggie is a truly formidable partner - one to waltz with. We do not spend a lot of time with each other, as we like to keep some mystery between us. Whenever I see her, I discover something new about her".

Many consider Leung's role in director John Woo's 1992 action film Hard Boiled in which he co-starred with Chow Yun-fat, as his breakthrough role in film. However, Leung first gained international exposure through Hou Hsiao-Hsien's 1989 film A City of Sadness, which won the Venice Golden Lion.

Leung often collaborates with director Wong Kar-wai and has appeared in many of his films. His most notable roles in Wong Kar-wai's films include the lonely policeman in Chungking Express (1994), a gay Chinese expatriate living in Argentina in Happy Together (1997), and a self-controlled victim of adultery in In the Mood for Love (2000), for which he won the Best Actor award at Cannes.

He is considered by many to be the finest actor of his generation in Hong Kong. Robert De Niro is an admirer of his work, and Leung has been called Asia's answer to Clark Gable.

Leung also has an on-and-off Cantopop and Mandarin pop singing career and sang the theme song of Infernal Affairs with Andy Lau.