Dungy was born in Jackson, Michigan to Wilbur and Cleomae Dungy. Dungy's parents, both educators, encouraged a focus on academics early on in his and his siblings' lives. Dungy attended Parkside High School, where he played the guard position on the basketball team and the quarterback position on the football team.

Dungy is married to Lauren Dungy and has two daughters, Tiara and Jade, and three sons, James (deceased -2005), Eric, and Jordan.

Dungy's 18-year-old son, James, was found unresponsive in his apartment in Lutz, Florida, by his girlfriend on December 22, 2005. CPR was performed, but he was pronounced dead upon arrival at University Community Hospital. A preliminary coroner's report indicated that James committed suicide. He had been treated for a prescription drug overdose on October 21 of that year. It was reported on January 5, 2006 that James Dungy used a belt to hang himself from a ceiling fan. The game against the Seattle Seahawks on December 24, 2005 was coached by assistant coach Jim Caldwell.

Dungy is a Christian and at one point in his coaching career considered leaving football for the prison ministry. Throughout his career, he has remained involved with community service organizations.

His tenure in Tampa Bay as the head coach of the Buccaneers brought greater attention to Dungy's personal accomplishments outside of sports. Tony Dungy has earned widespread respect both on and off the field due to what many see as strong convictions and high personal standards of ethics and behavior, which affect his behavior as both a coach and as a member of his community. He has been active in many community service organizations in the cities in which he has coached. While in Tampa Bay, Dungy worked as a public speaker for the Fellowship of Christian Athletes and Athletes in Action. He began a mentoring program for young people called Mentors for Life, and provided Buccaneers' tickets for the participants. He also supported other charitable programs in the area such as Big Brothers/Big Sisters, Boys and Girls Club, the Prison Crusade Ministry, foster parenting organizations, and Family First. His community involvement and care continues in Indianapolis where Tony helped launch the Basket of Hope program which aids children at Riley Hospital for Children. He continues to assist Big Brothers/Big Sisters and the Boys and Girls Club in Indianapolis. He also supports the Black Coaches Association National Convention and Indiana Black Expo.

The death of his son in late 2005 had a great impact not only in his current coaching city of Indianapolis, but also in the Tampa Bay area where he is still beloved as the ex-coach for the Buccaneers, but also with players, coaches and fans from around the country.

Dungy was recruited by University of Minnesota coach Cal Stoll, and played his entire college career for the Golden Gophers from 1973 to 1976. He entered the starting lineup as a quarterback during his freshman year, and in four years, finished as Minnesota's career leader in pass attempts (576), completions (274), touchdown passes (25), and passing yards (3,577). He also finished fourth in career total offense in the Big Ten Conference. He received Minnesota's Most Valuable Player award twice.

Following college, Dungy entered the National Football League as a free agent playing for the Pittsburgh Steelers, where he played as a backup safety during Pittsburgh's Steel Curtain dynasty In the Steelers Super Bowl winning season of 1978, he was promoted to starter and led the team with 6 interceptions. After defeating the Dallas Cowboys in Super Bowl XIII, Pittsburgh traded Dungy to the San Francisco 49ers in 1979, where he played one year. The 49ers traded him to the New York Giants at the beginning of the 1980 season, but he was cut during training camp. Subsequently, he retired from the National Football League.

In his 3 NFL seasons, Dungy recorded 9 interceptions, which he returns for 132 yards. He also recovered 3 fumbles and returned 8 punts for 52 yards.