Gene was the third son of James Kelly, a phonograph salesman, and Harriet Curran, who were both children of Irish Roman Catholic immigrants. He was born in the Highland Park neighborhood of Pittsburgh, Pennsylvania, U.S. and, at the age of eight, was enrolled by his mother in dance classes, along with his older brother James. He graduated from Peabody High School in 1929. He enrolled in Pennsylvania State College to study journalism but the economic crash obliged him to seek employment to help with the family's finances. At this time, he worked up dance routines with his younger brother Fred in order to earn prize money in local talent contests, and they also performed in local nightclubs.

In 1931 Kelly enrolled at the University of Pittsburgh to study economics where he joined the Phi Kappa Theta fraternity and earned a Bachelor of Arts in Economics in 1933. In 1930, his family started a dance studio on Munhall Road in the Squirrel Hill neighborhood of Pittsburgh. In 1932, it was renamed The Gene Kelly Studio of the Dance. A second location was opened in Johnstown, Pennsylvania in 1933. While still an undergraduate student and later as a student at Pitt's School of Law, Gene was a teacher at the dance studio. Eventually, though, he decided to pursue his career as a dance teacher and entertainer full-time and so dropped out of law school after two months. In 1937, having successfully managed and developed the family's dance school business, he moved to New York City in search of work as a choreographer.

After a fruitless search, Kelly returned to Pittsburgh, to his first position as a choreographer with the Charles Gaynor musical revue Hold Your Hats at the Pittsburgh Playhouse in April, 1938. Kelly appeared in six of the sketches, one of which, "La Cumparsita", became the basis of an extended Spanish number in Anchors Aweigh eight years later.

His first Broadway assignment, in November 1938, was as a dancer in Cole Porter's Leave It to Me!. His first career breakthrough was in the Pulitzer Prize-winning The Time of Your Life, which opened on November 11, 1939, where for the first time on Broadway he danced to his own choreography. In the same year he received his first assignment as a Broadway choreographer, for Billy Rose's Diamond Horseshoe. His future wife, Betsy Blair, was a member of the cast. They began dating and were married on October 16, 1941.

In 1940, he was given the leading role in Rodgers and Hart's Pal Joey and this role propelled him to stardom. Offers from Hollywood began to arrive but Kelly was in no particular hurry to quit New York. Eventually, he signed with David O. Selznick, agreeing to go to Hollywood at the end of his commitment to Pal Joey, in October 1941. Prior to leaving he also choreographed the stage production of Best Foot Forward.

Selznick sold half of Kelly's contract to MGM and loaned him out to MGM for his first motion picture: For Me and My Gal (1942) with Judy Garland. He achieved his breakthrough as a dancer on film, when MGM loaned him out to Columbia to play opposite Rita Hayworthin Cover Girl (1944), where he created a memorable routine dancing to his own reflection. In his next film Anchors Aweigh (1945), MGM virtually gave him a free hand to devise a range of dance routines, including the celebrated and much imitated animated dances with Jerry Mouse of Tom and Jerry, and his duets with co-star Frank Sinatra. Anchors Aweigh became one of the most successful films of 1945 and it garnered Kelly his first and only Academy Award nomination for Best Actor.

There followed in quick succession two musicals which have secured Kelly's reputation as a major force in the Americal musical film, An American in Paris (1951) and - probably the most popular and admired of all film musicals - Singin' in the Rain (1952). As co-director, lead star and choreographer, Kelly was the central driving force. An American in Paris won six Academy Awards, including Best Picture and, in the same year, Kelly was presented with an honorary Academy Award for his contribution to film musicals and the art of choreography. The film also marked the debut of Leslie Caron, who Kelly had spotted in Paris and brought to Hollywood. Its dream ballet sequence, lasting an unprecedented thirteen minutes, was the most expensive production number ever filmed up to that point. Singin' in the Rain featured Kelly's celebrated and much imitated solo dance routine to the title song, along with the "Moses Supposes" routine with Donald O'Connor and the "Broadway Melody" finale with Cyd Charisse, and while it did not initially generate the same enthusiasm as An American in Paris, it subsequently overtook the latter film to occupy its current pre-eminent place among critics and filmgoers alike.

When he began his collaborative film work, he was heavily influenced by Robert Alton and John Murray Anderson, striving to create moods and character insight with his dances. He choreographed his own movement, along with that of the ensemble, with the assistance of Jeanne Coyne, Stanley Donen, Carol Haney, and Alex Romero. He experimented with lighting, camera techniques and special effects in order to achieve true integration of dance with film, and was one of the first to use split screens, double images, live action with animation and is credited as the person who made the ballet form commercially acceptable to film audiences. There was a clear progression in his development, from an early concentration on tap and musical comedy style to greater complexity using ballet and modern dance forms.