He was born in Brooklyn, New York, to a Sephardic Jewish family from Syria. Hedaya was a junior high school teacher for many years before deciding to pursue acting full-time.

Alongside a successful career in the movies, Hedaya has held several TV roles, most notably that of Carla Tortelli's charmingly sleazy ex-husband Nick on the sitcom Cheers. He also had a memorable turn as Mallory Keaton's boyfriend Nick's estranged father on the sitcom Family Ties. More recently, he played an Italian-American priest in the controversial and quickly cancelled NBC series The Book of Daniel. Adding to his list of television credits is his performance as the long-lost father of Adrian Monk on Monk in a special presentation of the show that aired in November 2006.

Younger audiences may recognize Dan Hedaya best for his role as Alicia Silverstone's character's father Mel Horowitz in the 1995 hit movie Clueless, while cult film fans will recognize him as Julian Marty from the Coen Brothers' first feature, Blood Simple.