Born in Queen Anne County, Maryland on April 15, 1741, Peale was the eldest child of Charles Peale. He was apprenticed to a saddler at age 13. After his apprenticeship, he married Rachel Brewer on January 12, 1762 with whom he had six children (his subsequent marriages were to Elizabeth DePeyster with whom he had six children, and Hannah Moore).

He joined the Sons of Freedom and he was quickly forced to abandon his trade by his Loyalist creditors. Consequently, he began painting portraits of himself and his wife to earn money, and he took instruction from John Hesselius, a painter. In 1767, he arrived in London to study under Benjamin West. Peale first met Franklin on this trip to London. He returned to Annapolis, Maryland in 1769 and quickly became in demand as a portrait painter. In 1776, he established his household in Philadelphia.

Peale served in the Revolution and was nominated to the General Assembly of Pennsylvania. Later in life he established his museum of natural curiosities (Franklin is known to have donated the carcass of an angora cat to Peale's museum). In 1794 the museum was removed to the American Philosophical Society, and in 1802 was established as the furnishing of the second floor of the State House (Independence Hall). Later significant elements of it were incorporated into the Philadelphia Museum.

Peale was among the founders of the Pennsylvania Academy of the Fine Arts in 1805. He died in 1827 in Philadelphia.

The contents of his museum were auctioned in 1854; many of the objects known to have been in it have found their way into public or private collections.