Badalamenti was born in Brooklyn, New York to an Italian family; his father was a fish market owner. He began taking piano lessons at age eight. By the time Badalamenti was a teenager, his aptitude at the piano earned him a summer job accompanying singers at resorts in the Catskill Mountains. He received a Bachelor of Arts degree from the Eastman School of Music and then earned Master of Arts degrees in composition, French horn, and piano from the Manhattan School of Music in 1960.
Badalamenti scored films such as Gordon's War, and Law and Disorder, but his big break came when he was brought in to be Isabella Rossellini's singing coach for the song "Blue Velvet" in David Lynch's 1986 film Blue Velvet. Inspired by This Mortal Coil's recent cover of the Tim Buckley song Song to the Siren, Lynch had wanted Rossellini to sing her own version, but was unable to secure the rights. In its place, Badalamenti and Lynch collaborated to write "Mysteries of Love", using lyrics Lynch wrote and Badalamenti's music. Lynch asked Badalamenti to appear in the film as the piano player in the club where Rossellini's character performs. This film was the first of many projects they worked on together.
After scoring a variety of mainstream films, including A Nightmare on Elm Street 3: Dream Warriors and National Lampoon's Christmas Vacation, he scored Lynch's cult television show, Twin Peaks which featured the vocals of Julee Cruise.
Many of the songs from the series were released on Cruise's album Floating into the Night. From the soundtrack of the television series, he was awarded the Grammy Award for Best Pop Instrumental Performance for the "Twin Peaks Theme".
Other Lynch projects he worked on include the movies Wild at Heart, Twin Peaks: Fire Walk with Me, Lost Highway, and Mulholland Drive (where he has a small role as a gangster with a finicky taste for espresso), as well as the television shows On the Air and Hotel Room. Other projects he has worked in include the television film Witch Hunt, and the films Naked in New York, The City of Lost Children, A Very Long Engagement, The Wicker Man, Dark Water and Secretary. He has also worked on the soundtrack for the video game Fahrenheit (known as Indigo Prophecy in North America). He was composer for director Paul Schrader on such films as Auto Focus, The Comfort of Strangers and Dominion: Prequel to the Exorcist. In 1998, Badalamenti recorded "A Foggy Day (in London Town)" with artist David Bowie for the Red Hot Organizationís compilation album Red Hot + Rhapsody a tribute to George Gershwin which raised money for various charities devoted to increasing AIDS awareness and fighting the disease. In 2005, he composed the themes for the movie Napola (Before the Fall), which were then adapted for the score by Normand Corbeil. In 2008, he directed the soundtrack of The Edge Of Love, with Siouxsie, Patrick Wolf and Beth Rowley on vocals.
He also conducted a performance during the opening ceremony of the 1992 Olympics in Barcelona.