Villeneuve was born in Saint-Jean-sur-Richelieu, Quebec, and grew up in Berthierville. He married Joann Barthe in 1970 and the couple had two children, Jacques and Mélanie. In his early competitive career, Villeneuve drove in local drag racing events before attending the Jim Russell Racing School at Circuit Mont-Tremblant. He competed in Quebec regional Formula Ford, winning seven of ten races, before moving to Formula Atlantic for four seasons. He won his first Atlantic race in 1975 at Gimli Motorsport Park in heavy rain, then dominated the 1976 season by winning all but one race and taking both the American and Canadian championships. He won the Canadian Formula Atlantic title again in 1977.
Villeneuve's early career was partly funded by success in snowmobile racing, where he could command appearance money. He won the 1974 World Championship Snowmobile Derby and credited snowmobile competition with teaching him car control and rain-driving: "Every winter, you would reckon on three or four big spills — and I'm talking about being thrown on to the ice at 100 miles per hour."
After impressing James Hunt and several Grand Prix drivers by beating them in a non-championship Formula Atlantic race at Trois-Rivières in 1976, Villeneuve was offered up to five Formula One races with McLaren for 1977. He made his Formula One debut at the 1977 British Grand Prix, qualifying ninth in McLaren's old M23. Despite a promising performance, McLaren team manager Teddy Mayer chose not to retain him, opting instead for Patrick Tambay.
Enzo Ferrari, alerted to Villeneuve's ability, invited him to Italy. Despite a test at Fiorano marked by mistakes and relatively slow times, Ferrari was convinced: "When they presented me with this 'piccolo Canadese', this minuscule bundle of nerves, I immediately recognised in him the physique of Nuvolari." Villeneuve signed to drive Ferrari's last two races of 1977 after Niki Lauda's mid-season departure, and was confirmed for the full 1978 season.
The 1978 season brought Villeneuve a succession of retirements, often through trouble with Michelin's radial tyres. His results improved late in the year, and at the season-ending Canadian Grand Prix on the Circuit Notre Dame Island in Montreal — the circuit eventually named after him — he scored his first Formula One victory after Jean-Pierre Jarier's Lotus retired. He remains the only Canadian to win the Canadian Grand Prix.
In 1979, partnered by Jody Scheckter, Villeneuve won three races and led the championship briefly after victories at Long Beach and Kyalami. The season is most remembered for his wheel-to-wheel duel with René Arnoux in the closing laps of the French Grand Prix at Dijon, where the two drivers made contact repeatedly while fighting for second place. Villeneuve ultimately held the position. He chose not to challenge Scheckter for the championship at the Italian Grand Prix when instructed by the team to hold station, ending his own title bid; Scheckter won the championship by four points. During wet Friday practice at the season-ending United States Grand Prix, Villeneuve set a time eleven seconds faster than anyone else, including his championship-winning teammate.
The 1980 season was difficult for Ferrari. Villeneuve scored only six points in the 312T5, a car with limited ground-effect aerodynamics. For 1981 Ferrari introduced the turbocharged 126C, a car with tremendous power but poor handling. Villeneuve extracted extraordinary results from it: at the Spanish Grand Prix at Jarama he held five faster cars behind him for most of the race, eventually winning with a margin of 0.22 seconds over second-placed Jacques Laffite. Ferrari engineer Harvey Postlethwaite reflected that the 126C "had literally one quarter of the downforce that, say, Williams or Brabham had... To win those races, the 1981 GPs at Monaco and Jarama — on tight circuits — was quite out of this world. I know how bad that car was."
The 1982 San Marino Grand Prix produced the defining controversy of Villeneuve's final months. With the FOCA teams boycotting the event, Ferrari and Renault were the principal competitors. After Renault's drivers retired, the Ferrari team signalled both cars to slow and hold position. Villeneuve understood this to include a freeze on running order. Pironi passed Villeneuve on the final lap to take the win. Villeneuve was irate and vowed never to speak to Pironi again, believing a prior understanding had been violated.
During qualifying for the Belgian Grand Prix at Zolder on 8 May 1982, Villeneuve came over a rise and encountered Jochen Mass travelling much more slowly. Mass moved right to give Villeneuve room on the racing line; Villeneuve moved right simultaneously to pass. The Ferrari struck the back of Mass' car and was launched into the air at an estimated 200–225 km/h. It was airborne for more than 100 metres before nosediving and breaking apart along the edge of the track. Villeneuve, still strapped to his seat but without his helmet, was thrown a further 50 metres into the catch fencing.
Several drivers stopped and rushed to the scene. John Watson and Derek Warwick pulled Villeneuve, his face blue, from the fence. He was found not breathing though with a pulse, intubated, and transferred by helicopter to University St Raphael Hospital in Leuven, where a fatal fracture of the neck was diagnosed. He was kept on life support until his wife arrived and specialists were consulted worldwide. Villeneuve died at 21:12 CEST. An inquiry by FISA's safety inspector concluded that an error from Villeneuve caused the collision and exonerated Mass of responsibility.
Villeneuve was known for an attacking, instinctive driving style and near-total commitment on the limit. He was regarded as one of the most naturally gifted racing drivers of his generation, capable of extracting remarkable results from inferior machinery. Off the track he was described as approachable, informal with media and fans, and genuinely enthusiastic about racing. At Villeneuve's funeral in Berthierville, former teammate Jody Scheckter delivered the eulogy: "He was the most genuine person I ever knew... the fastest racing driver that history has ever known."
Villeneuve competed in 67 Grands Prix, winning six, achieving thirteen podium finishes, two pole positions, and eight fastest laps. His number 27 Ferrari remains closely associated with him by fans around the world. In 1982 the circuit on Notre Dame Island in Montreal was renamed Circuit Gilles Villeneuve, and a sign reading "Salut Gilles" was painted at the start/finish line. A museum opened in Berthierville in 1992 and a bronze bust stands at Ferrari's Fiorano test track. Villeneuve was inducted into the Canadian Motorsport Hall of Fame at its inaugural ceremony in 1993 and into Canada's Sports Hall of Fame in 1983. A corner at the Autodromo Enzo e Dino Ferrari at Imola bears his name, and a Canadian flag is painted on the third grid slot — the position from which he started his final race.