A Chinese born in Kuching, Malaysia, lived there "in a very simple small village" for 20 years, after which he moved to Taiwan in 1977. His love for the cinema began at an early age with his grandparents regularly taking him to watch films from Hong Kong, China, and India.

In 1981 he graduated from the Drama and Cinema Department of the Chinese Cultural University of Taiwan and worked as a theatrical producer and TV director in Hong Kong.

His second feature film Vive l'Amour won the Golden Lion for best picture, at Venice (1994). Tsai's honours include the Silver Bear/Special Jury Prize for The River at the 1997 Berlin International Film Festival, the FIPRESCI award for The Hole at the 1998 Cannes Film Festival and the Alfred Bauer Award and Silver Bear for Outstanding Artistic Achievement for The Wayward Cloud at the 2005 Berlin International Film Festival.