Dailey was born and raised in New York City. He appeared in a minstrel show, and then in vaudeville before his first Broadway show in 1937. He was signed by MGM in 1940.
He served in the US Signal Corps during the Second World War and was discharged as a Captain.
In 1946 he was taking Linda Darnell's dresses from the Fox wardrobe department. Howard Hughes made him return them, but gave him a gift certificate for $5,000 at a leading department store.
He was teamed with Betty Grable in Mother Wore Tights, 1947. He was nominated for an Oscar for his performance in When My Baby Smiles at Me, 1948 – also with Grable. It is said that she also lent him some of her screen wardrobe - the best couture that Hollywood had to offer. Dan became one of the top male leads at Twentieth Century Fox in the early 1950s.
Andre Previn, the composer, tells in his biography how Dailey turned up drunk and in female clothing for the press screening of It's Always Fair Weather in 1954. Dailey co-starred with Johnnie Ray in There's No Business Like Show Business the same year, and was close to him afterwards. There were rumors that they were more than friends.
He married his fourth wife, Gwen Carter, in February 1955. In June Inside magazine wrote that "After every binge he shows up around the film colony, decked from head to toe in outlandish female attire". In September that year Uncensored ran an article dispelling the rumors that he was a transvestite (which was a way of repeating the stories without being sued).
In January 1957 Confidential ran "The Night Dan Dailey was Dolly Dawn" claiming that he had danced in a pink tulle dress in a New York gay bar the previous March. Betty tried to save Dailey's career by pointing to his wife and family, but his film career was essentially over by that point, although he continued in television into the 1970s.
In 1976, actress cum gossip columnist Joyce Haber was on television promoting her novel about Hollywood, The Users. Asked to dish some gossip, she mentioned that one of the top dancer-actors was a closet transvestite with a costly and beautiful wardrobe that many women would envy.
After the suicide of his only son (from his third marriage), he was an embittered alcoholic. He died three years later, just after he had played boyfriend Clyde Tolson in The Private Files of J.Edgar Hoover, 1977. He appeared in over 60 films.
- "The Night Dan Dailey was Dolly Dawn". Confidential. Jan 1957.
- Spero Pastos. Pin-Up: The Tragedy of Betty Grable. Putnam, 1986: 76-7.
- Andre Previn. No Minor Chords: my days in Hollywood. Doubleday 1991. Toronto & London: Bantam 1993:64
- Boze Hadleigh. The Vinyl Closet: Gays in the Music World. Los Hombres Press, 1991:229-30. Republished as Sing out! : gays and lesbians in the music world. Barricade Books 1997, Robson Books 1999.
- William J. Mann. Behind the Screen: How gays and lesbians shaped Hollywood. Viking, 2001: 314-5.
- Darwin Porter. Howard Hughes, Hell’s Angel: America’s Notorious Bisexual Billionaire, The Secret Life of the U.S. Emperor. Blood Moon Productions 2005: 630.