Born in Düsseldorf, his dream was to become a famous actor and producer. At the age of 17 he had his first role at the theatre during WWI. After the war he studied acting and dramatic arts in Düsseldorf and became an actor at theatres in Halberstadt and Kiel. Grundgens was married to Erika Mann, but they soon divorced.

When President Hindemburg named Hitler as German chancellor in 1933, Gründgens was in Spain producing a movie. Although many friends asked him to stay in Spain, he returned to Nazi Germany. Because of the atrocities, cruelties and excesses of the Nazis, a majority of writers, artists and scientist fled the country. The Nazi government did not hesitate to honour the remaining artists, and so Gründgens became the director of the Staatstheater in Berlin.

Although he was gay and had several men, including hustlers, who visited him in his luxurious villa, the minister of culture protected him. After the so-called Roehm riot in 1934 the nazis intensified persecution of gay men and sent them in concentration camps, but Gründgens was not targeted because al other highly gifted actors had emigrated.

After WWII the Soviets imprisoned Gründgens and accused him of supporting the Nazis. But several actors testified that he had helped Jewish actors to flee. In the case of the actor and writer Moritz Seeler, Gründgens had rescued him from deportation and given him enough money to leave the country. Gründgens was released and acquitted and worked at the German Theatre in Berlin.

The aggravated sodomy laws of the Nazis were not repealed by the Communist Germany, and the witch-hunt against gay-men continued. Gründgens was condemned to hide his gay identity. Honoured and appreciated as an unique actor and producer, he died in an accident in Manila, said by some to have been in fact a suicide.

The film Mephisto (1981), based on a novel by Klaus Mann, his former brother-in-law, that depicted him as an unscrupolous egoist, whase career was based on machinations and an opportunistic attitude, was based on his life story.