Estévez was born in New York City, the eldest child of actor Martin Sheen and artist Janet Templeton. His siblings are Ramón Luis Estévez, Charlie Sheen and Renée Estévez. Unlike his brother, Emilio and his other siblings did not adopt their father's stage name. He initially attending school in the New York public-school system, but transferred to a prestigious private academy once his father's career took off. When Estevez was eleven years old, his father bought the family a portable movie camera. Estevez, his brother Charlie, and their high school friends, Sean and Chris Penn and Chad and Rob Loweused the camera to make short films, which Estevez would often write.

Estévez received great attention during the 1980s for being a member of the Brat Pack, a group of young actors. Many unofficially perceived him as the leader of the group. He and Rob Lowe established the Brat Pack when cast as supporting "Greasers" in the first Brat Pack movie, The Outsiders based on the novel, casting Lowe as C. Thomas Howell's older brother Sodapop, with Estevez as the drunken Two-Bit Matthews. During production, he also approached his character as a laid-back guy, and thought up Two-Bit's interest in Mickey Mouse, shown by his uniform of Mickey T-shirts and watching cartoons.

In 1992, Estevez starred in The Mighty Ducks. He starred as Coach Bombay, a professional hockey player, who is forced into coaching a pee wee hockey team as a form of community service. The film was so successful that it was followed with two sequels. Estevez has acted alongside his father several times. He starred with him in The War at Home (1996) in which he played a Vietnam War veteran dealing with posttraumatic stress disorder, and guest starred in one episode of The West Wing. From 1998 to 1999, he appeared in three television movies: Dollar for the Dead (1998), Late Last Night (1999), and Rated X (2000).

Aside from acting, Estevez has also directed television shows and motion pictures. Most recently, he has directed episodes of the television series Cold Case, Close to Home, The Guardian and CSI: NY. The films he has directed include Wisdom, Men at Work, The War at Home and Bobby. Estevez has stated that he will direct and star in an independent film called "The Bang Bang Club", as well as that he currently has six screenplays that he has written that remain unproduced. Estevez said during an interview after one of the first screenings of Bobby that his next film will likely be Johnny Longshot.

Estevez has two children with his ex-girlfriend, model Carey Salley. They have a son, Taylor Levi Estevez (born in June 1984), and a daughter, Paloma Rae Estevez (born in February 1986). He was briefly engaged to actress Demi Moorebefore the relationship ended. The two remain good friends and even starred as a feuding married couple in Bobby. On April 29, 1992, he married singer-choreographer Paula Abdul They divorced in May 1994, with Abdul later stating the reasons being her desire to have children as opposed to Estevez's contentment with the two children he already had. In 2006, he announced his engagement to writer Sonja Magdevski.