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Gilliam was born in Minneapolis, Minnesota, the son of Beatrice (nee Vance) and James Hall Gilliam. His father was a travelling salesman for Folgers before becoming a carpenter. Soon after, they moved to nearby Medicine Lake, Minnesota. The family moved to the Los Angeles neighbourhood of Panorama City in 1952.

Gilliam's films have a distinctive look, not only in mise-en-scene but even more so in photography, often recognisable from just a short clip; to create a surreal atmosphere of psychological unrest and a world out of balance, he frequently uses unusual camera angles, particularly low-angle shots, high-angle shots, and Dutch angles. Roger Ebert said that "his world is always hallucinatory in its richness of detail." Most of his movies are shot almost entirely with rectilinear ultra-wide-angle lenses with focal lengths of 28mm or less to achieve a distinctive style defined by extreme perspective distortion and extremely deep focus. Gilliam's long-time director of photography Nicola Pecorini has said, "with Terry and me, a long lens means something between a 40mm and a 65mm." This attitude markedly differs from the common definition in photography, by which 40 to 65 mm is the focal length of a normal lens, resembling the natural human field of view, unlike Gilliam's signature style, defined by extreme perspective distortion due to his usual choice of focal length. The 14-mm lens has become informally known as "The Gilliam" among filmmakers because of his frequent use of it at least since Brazil. Gilliam has explained his preference for using wide-angle lenses in his films:  The wide-angle lenses, I think I choose them because it makes me feel like I'm in the space of the film, I'm surrounded. My prevalent vision is full of detail, and that's what I like about it. It's actually harder to do, it's harder to light. The other thing I like about wide-angle lenses is that I'm not forcing the audience to look at just the one thing that is important. It's there, but there's other things to occupy, and some people don't like that because I'm not pointing things out as precisely as I could if I was to use a long lens where I'd focus just on the one thing and everything else would be out of focus. ...  [M]y films, I think, are better the second and third time, frankly, because you can now relax and go with the flow that may not have been as apparent as the first time you saw it and wallow in the details of the worlds we're creating. ... I try to clutter [my visuals] up, they're worthy of many viewings.  In another interview, Gilliam mentioned, in relation to the 9.8-mm Kinoptic lens he had first used on Brazil, that wide-angle lenses make small film sets "look big". The widest lens he has used so far is an 8-mm Zeiss lens employed in filming The Imaginarium of Doctor Parnassus.
Terry Gilliam