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Dunham was born in Dallas, Texas on April 18, 1962. When he was three months old, he was adopted by real estate appraiser Howard Dunham, and his homemaker wife Joyce, who raised him in a devoutly Presbyterian household in an affluent Dallas neighborhood, as an only child. He began ventriloquism in 1970 at age eight, when his parents gave him a Mortimer Snerd dummy for Christmas, and an accompanying how-to album. The next day he checked out a how-to book on ventriloquism from the library, and explained in 2011 that he still had it, remarking that he was "a thief in the third grade".

On July 18, 2003, Dunham appeared on Comedy Central Presents, his first solo appearance on Comedy Central. During his half hour piece, he showcased Jose Jalapeno on a Stick, Walter, an early version of Melvin the Superhero Guy and Peanut, whom Dunham had begun to merchandise into a line of dolls. The appearance was successful, but Comedy Central resisted giving Dunham more airtime, feeling that he was not a good fit for them. By 2005 Dunham decided to gamble on financing his own comedy DVD, Jeff Dunham: Arguing with Myself, which was taped in Santa Ana, California. Dunham's manager, Judi Brown-Marmel, lobbied the network to air it, pointing to Dunham's drawing power and merchandising profits, and arguing that the network needed more diverse content. Surprised by the high ratings of the first Blue Collar Comics concert movie that same year, the network began to reconsider its brand. In late 2006, Comedy Central aired Arguing with Myself, drawing two million viewers when it aired, and selling two million DVDs.  In 2007, Dunham appeared as The Amazing Ken with Jose Jalapeno on a Stick in the Larry the Cable Guy feature film Delta Farce. His second special, Jeff Dunham: Spark of Insanity, was taped at the Warner Theater in Washington, D.C. that same year. It served not only to cement Dunham's stardom, but to introduce his most controversial character, Achmed the Dead Terrorist, which became a viral Internet sensation. A clip of Achmed from Insanity attracted over 140 million hits on YouTube, making it the ninth most watched clip on that website as of October 2009.  By 2008, Dunham's characters had crossed language barriers, with his specials dubbed for audiences in various countries such as France, and Dunham attracting requests for performances in South Africa, Australia, Norway, Denmark, China, and the Middle East. Jeff Dunham's Very Special Christmas Special was taped at the Pabst Theater in Milwaukee, Wisconsin that same year, and premiered on Comedy Central on November 16, 2008, watched by 6.6 million people. It became available on DVD and Blu-ray on November 18, 2008. The special's premiere was the highest rated telecast in Comedy Central's history.  In September 2008, his career reached new heights as he began performing in arenas filled with tens of thousands of people. Dunham was somewhat wary of such large venues, but adapted by adjusting the timing of his often rapid exchanges with the puppets so that audience members farthest from the stage could have time to react.  In addition to his comedy specials, Dunham also released his first music album, Don't Come Home for Christmas, on November 4, 2008. It contains original Christmas songs as well as a parody of "Jingle Bells" by Achmed entitled "Jingle Bombs". All the songs, with the exception of "Jingle Bombs", were written and accompanied by Brian Haner, who joined Dunham's act as "Guitar Guy". His first onscreen appearance was in Jeff Dunham's Very Special Christmas Special.
Jeff Dunham