Dreyfuss won the Academy Award for Best Actor in 1977 for The Goodbye Girl, and was nominated in 1995 for Mr. Holland's Opus. He has also won a Golden Globe Award, a BAFTA Award, and was nominated in 2002 for Screen Actors Guild Awards in the Outstanding Performance by a Male Actor in a Drama Series and Outstanding Performance by a Male Actor in a Television Movie or Miniseries categories.

Dreyfuss's acting career began during his youth at the Beverly Hills Jewish Center. He debuted in the TV production In Mama's House when he was fifteen. He attended the San Fernando Valley State College (later re-named California State University, Northridge) for a year. He was a conscientious objector during the Vietnam War  and worked in alternate service for two years as a clerk in a Los Angeles hospital. During this time, he acted in a few small TV roles on shows like Peyton Place, Gidget, Bewitched and The Big Valley. During the late 1960s and early 1970s, he also performed on stage on Broadway, off-Broadway, repertory, and improvisational theater, as well as dabbleing in witchcraft.

Dreyfuss's first film part was a small, uncredited role in The Graduate and had one line, "Shall I get the cops? I'll get the cops." He was also briefly seen as a stage hand in Valley of the Dolls, in which he had a few lines. He appeared in the subsequent Dillinger, and landed a role in the 1973 hit American Graffiti, acting with other future stars such as Harrison Ford and Ron Howard. Dreyfuss played his first lead role in the Canadian film The Apprenticeship of Duddy Kravitz.

He went on to star in the box office blockbusters Jaws and Close Encounters of the Third Kind, both directed by Steven Spielberg.

Dreyfuss won the 1978 Academy Award for Best Actor for his portrayal of a struggling actor in The Goodbye Girl, becoming the youngest actor to do so. This record has since been surpassed by Adrien Brody.

Around 1978, Dreyfuss began using cocaine frequently; his addiction came to a head four years later in 1982, when he was arrested for possession of the drug after his car struck a tree. He entered rehabilitation and eventually made a Hollywood comeback with the film Down And Out In Beverly Hills in 1986 and Stakeout the following year.

He had a starring role opposite Bill Murray in the 1991 hit comedy What About Bob? as a psychiatrist who goes crazy while trying to cope with a particularly obsessive new patient. Dreyfuss later worked with Burns as producer and took on the role of Georges Picquart in Prisoner of Honor, a HBO movie about the historical incident released in 1991.

In 1994, Dreyfuss participated in the historic Papal Concert to Commemorate the Shoah (Holocaust) at the Vatican in the presence of Pope John Paul II, Rav Elio Toaf, chief rabbi of Rome, and Oscar Luigi Scalfaro, President of the Italian Republic. He recited Kaddish as part of a performance of Leonard Bernstein's Third Symphony with the Royal Philharmonic Orchestra under the baton of Gilbert Levine. The event was broadcast worldwide.

Dreyfuss was nominated for an Oscar and a Golden Globe for his performance as Glenn Holland in Mr. Holland's Opus (1995). Since then he has continued working in the movies, television and the stage. In 2001/2002, he played Max Bickford in the television drama The Education of Max Bickford. In April 2004, he appeared in the revival of Sly Fox on Broadway (opposite Eric Stoltz, René Auberjonois, Bronson Pinchot and Elizabeth Berkley).

In November 2004, he was scheduled to appear in The Producers in London, but withdrew from the production a week before opening night. The media noted that Dreyfuss was still suffering from problems relating to an operation for a herniated disc in January, and that the part of Max Bialystock in the play is a physically demanding one. Both he and his assistant for the production stated that Dreyfuss was accumulating injuries that required him to wear physical therapy supports during rehearsals. Nathan Lane was brought in to replace Dreyfuss in the London production. It later emerged that he'd been fired.

Dreyfuss recorded the voiceover to the Apple, Inc., then Apple Computer, Inc., Think Different ad campaign in 1997. The text of the ad begins, "Here's to the crazy ones, the misfits, the rebels..."

In 2006, he appeared as one of the survivors in the 2006 film Poseidon. Dreyfuss portrayed U.S Vice President Dick Cheney in Oliver Stone's 2008 George W. Bush.

In early 2009, he appeared in the play Complicit (directed by Kevin Spacey) in London's Old Vic theatre. His participation in the play was subject to much controversy, owing to his use of an earpiece on stage, reportedly because of his inability to learn his lines in time. He guest-voiced as himself in the "Three Kings" episode of Family Guy in 2009, and later appeared again in the episode "Peter-assment". Dreyfuss will guest star in at least four episodes of the sixth season of Weeds, which premieres in the US in August 2010.

Dreyfuss has a star on the Hollywood Walk of Fame at 7021 Hollywood Blvd.