Wallace was playing for Scottish league side Dumbarton – having signed for them from Scottish Junior club Yoker Athletic – when he was purchased for £70,000 by the then Coventry manager Gordon Milne. Wallace soon settled into the Coventry side with his small frame perfectly complimenting his larger strike partner Mick Ferguson. He was adored by the Coventry City faithful and his heroic antics both on and off the field endeared him to the fans and his classic ginger curly perm haircut made him stand out as much as his acrobatic goals. He emerged from a bad car accident whilst at the club sporting a deep scar on the forehead and also detached a retina whilst playing for Coventry at Norwich. The 1977–78 saw Ian playing in Coventry's most exciting top-flight team. A side containing Ferguson, Tommy Hutchison, Terry Yorath, Graham Oakey, Bobby MacDonald and Jim Blyth played a brand of attacking football that swept many teams aside, often by large margins of victory.
He was sold to neighbouring Midlands club (and then European champions) Nottingham Forest in July 1980 for the then massive sum of £1.25 million, his first game being their UEFA Super Cup defeat to Valencia that summer. Wallace went on be Forest's top scorer for three seasons running. He subsequently moved to French club Brest before returning to English football with Sunderland in the years 1985–1986. He had spells with clubs in Portugal and Australia at the end of his playing career.
Whilst a prolific goalscorer with top-flight clubs Coventry City and Nottingham Forest, Wallace only played three times for his country. He scored his only international goal in the meeting with Bulgaria in February 1978, which featured his Coventry team-mate Jim Blyth in goal.