Rydell was born in Vallentuna, Stockholm. He initially trained as an accountant in his family's flower boutique business before committing to motorsport. He won the Swedish 100cc go-kart championship in 1984 and 1985, then progressed through Swedish, British, and Japanese Formula Three during the late 1980s and early 1990s. He won the 1992 Macau Grand Prix after taking pole in 1991.
Rydell joined the British Touring Car Championship in 1994 driving for the TWR Volvo team. His car gained immediate attention by competing as an estate rather than a saloon — the distinctive Volvo 850 Estate. The team switched to a saloon body for 1995, and Rydell claimed pole for 13 of the 24 races but won only four times due to slow starts, finishing third in the championship. In 1996, despite Audi's dominance under Frank Biela, Rydell scored four victories and six podiums to again finish third. In 1997 with the new Volvo S40 he took fourth overall.
The 1998 season brought the BTCC title. Rydell won five races, took 12 podiums, and beat Anthony Reid at the final meeting to claim the championship. He also won the 1998 Super Touring Bathurst 1000, sharing a Volvo S40 with Jim Richards. In 1999 he was third behind the two Nissan Primeras with four victories and seven podiums.
After five years at Volvo, Rydell was loaned to Ford (Prodrive) for 2000, finishing third once again despite teammates Alain Menu and Anthony Reid placing first and second.
Rydell spent much of 2001 waiting for a ETCC Volvo S60 to be completed, filling time in the FIA GT Championship with Prodrive in a Ferrari 550 Maranello. He raced in the ETCC from 2002 to 2003 with Volvo but achieved limited success without full factory backing. In 2004 he moved to SEAT for the ETCC and also the emerging WTCC, finishing sixth in 2005 after winning at Silverstone.
He continued with SEAT in 2006 and 2007, scoring sporadically. In 2007 at the WTCC round in Anderstorp, competing as a guest for Chevrolet in front of his home crowd, Rydell won the second race of the day despite team orders to protect Nicola Larini's championship position. He rejoined SEAT's official roster in 2008, winning at Estoril and Okayama to finish fifth overall — his best WTCC result during those seasons. He stayed with SEAT in 2009, winning at Puebla and finishing seventh overall.
Alongside his touring car work, Rydell participated in GT racing at various points in his career. He drove a Ferrari 550 Maranello for Prodrive in the 2001 FIA GT Championship, winning twice. He shared the same car at the 2002 24 Hours of Le Mans, retiring early. At the 2004 Le Mans he shared a Ferrari with Darren Turner and Colin McRae, finishing on the GTS class podium.
His most significant GT result came at the 2007 24 Hours of Le Mans, where he joined David Brabham and Darren Turner in an Aston Martin DBR9 entered by Prodrive and won the GT1 class outright.
After a year working as a television commentator for Swedish broadcasting coverage of the Scandinavian Touring Car Championship, Rydell returned to racing in 2011, joining Chevrolet Motorsport Sweden. He won the STCC title at the final round of the season by two points over Fredrik Ekblom, giving him his second national touring car championship. He made a final WTCC appearance at the 2013 Race of China for NIKA Racing before announcing his retirement from motorsport in early 2016. A 2005 Motorsport Magazine poll voted him the 18th greatest touring car driver of all time.