Bettenhausen was born and raised in Tinley Park, Illinois. He acquired his nickname "Tunney" — later corrupted to "Tony" — from heavyweight boxing champion Gene Tunney. He became part of the midget car "Chicago Gang," a loose circle of Midwest racers that included Emil Andres, Cowboy O'Rourke, Paul Russo, Jimmy Snyder, and Wally Zale, who regularly toured tracks across the Midwest and East Coast.
Bettenhausen established himself in midget car racing before graduating to championship cars. He won the track championship at the Milwaukee Mile in 1942, 1946, and 1947, and claimed the Chicago Raceway Park championship in 1941, 1942, and 1947. Later achievements at the midget level included winning the Turkey Night Grand Prix in 1959 and the Hut Hundred in both 1955 and 1956.
In October 1950, Bettenhausen was involved in a serious accident during a race in Sacramento, California, when his car locked wheels with a competitor. The resulting crash through the guard rail proved fatal to spectator Peter Bernard Stuberak and injured two others.
Bettenhausen drove in the AAA and USAC Championship Car series from 1941 and from 1946 through 1961, amassing 121 starts. He scored 21 victories and finished in the top ten on 74 occasions.
He claimed his first National Championship in 1951 after recording eight victories and two second-place finishes in fourteen events. Following the title he announced retirement from all racing except the Indianapolis 500, but reversed that decision and returned full time for 1954 — a comeback interrupted by a midget car accident in Chicago in which he struck a concrete wall and suffered head injuries, leaving him in critical condition for several days.
In 1958, Bettenhausen made history by becoming the first driver to win the National Championship without claiming a single race victory that season, clinching the title with a second-place finish at Phoenix. He followed that with a runner-up finish in the 1959 national championship behind Rodger Ward.
At the Indianapolis 500, Bettenhausen prearranged a co-drive with Chicago Gang friend Paul Russo for the 1955 race; the pair finished second.
Because the AAA/USAC-sanctioned Indianapolis 500 counted toward the FIA World Drivers' Championship from 1950 through 1960, Bettenhausen's 500 appearances gave him World Championship participation across 11 seasons. He finished in the top three once, set one fastest leader lap, and accumulated 11 World Drivers' Championship points.
On May 12, 1961, Bettenhausen was killed while testing a Stearly Motor Freight Special at Indianapolis Motor Speedway on behalf of his friend and longtime co-driver Paul Russo. An anchor bolt fell from the front radius rod support, causing the front axle to twist and the front wheels to misalign when the brakes were applied. The car smashed into the outside wall and rolled 325 feet along the barrier before coming to rest between the wall and Grandstand A, the tail of the car on fire. Bettenhausen died instantly. He was buried at Crown Hill Cemetery and Arboretum in Indianapolis.
Bettenhausen's death cut short a career widely regarded as one of the most versatile in American open-wheel racing. Three of his sons — Gary, Tony Jr., and Merle — went on to race at Indianapolis, extending the family's motorsport legacy into a second generation. Tony Bettenhausen has been inducted into multiple halls of fame: the Auto Racing Hall of Fame (1968), the National Midget Auto Racing Hall of Fame (1985), the International Motorsports Hall of Fame (1991), the Motorsports Hall of Fame of America (1997), the National Sprint Car Hall of Fame (2008), and the United States Auto Club Hall of Fame (2013).