Dempsey was born in Lewiston, Maine, and grew up in the nearby towns of Turner and Buckfield. He has two older sisters and a half-brother, Shane. His mother, Amanda (nee Casson), was a school secretary, and his father, William, was an insurance salesman. He attended Buckfield High School and St. Dominic Regional High School.

Dempsey made a number of featured appearances in television in the 1990s; he was cast several times in pilots that were not picked up for a full season, including lead roles in the TV versions of the films The Player and About A Boy. However, he received good reviews as he portrayed real-life mob boss, Meyer Lansky in 1991 when Mobsters was put on the screen. His first major television role was a three-episode stint as Will Truman's closeted sportscaster boyfriend on Will & Grace. He went on to play the role of Aaron Brooks on Once & Again. Dempsey received an Emmy nomination in 2001 as Outstanding Guest Actor in a Drama Series for the role of Aaron. In 1993, he played a young John F. Kennedy in the two-part TV mini-series JFK: Reckless Youth. In 2000, he played Detective Kincaid in Scream 3.  Dempsey had a high-profile role as the fiance of Reese Witherspoon's character in Sweet Home Alabama (2002). In 2004, he co-starred in the highly acclaimed HBO production Iron Jawed Angels, opposite Hilary Swank and Anjelica Huston. He also appeared as special guest star in The Practice for its three-episode finale season (8x13-8x15).  In 2007, Dempsey starred in the Disney film Enchanted, and the Paramount Pictures film Freedom Writers, where he reunited with his Iron Jawed Angels co-star Hilary Swank. He also voiced the character Kenai in Brother Bear 2, replacing Joaquin Phoenix. Dempsey's most recent roles include the 2008 film Made of Honor as Tom, and the 2010 romantic comedy Valentine's Day; the latter film follows five interconnecting stories about Los Angelinos anticipating (or in some cases dreading) the holiday of love.  Universal Pictures acquired the rights to the prize-winning novel The Art of Racing in the Rain in July 2009, for Dempsey to star in. The project has not been able to find a director. He starred as Dylan Gould in Transformers: Dark of the Moon (2011).

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