Born in New York City, Demme grew up in Rockville Centre on Long Island, New York and attended South Side Senior High School. He graduated from SUNY-Cortland in 1985. His media career likely began with a radio show at WSUC-FM (SUNY-Cortland) in Cortland, NY. His show was a mix of comedy and talk radio with the usual sidekick, as well as some music and was widely listened to on and off campus. He was the nephew of movie producer and director Jonathan Demme. His career had modest beginnings — starting as a production assistant at MTV, he later became a producer in the On-Air Promotions Department and created the cable network's seminal hip-hop show Yo! MTV Raps and directed other projects for them, including the infamous black-and-white rants starring then-unknown chain-smoking comedian Denis Leary.
Over the course of his career, he established a group of actors that he chose to work with on more than one occasion. The most frequently used of these was Denis Leary, who he directed as a lead or star in No Cure for Cancer, The Ref, Denis Leary: Lock 'n Load, and Monument Ave.. Leary also worked as a producer on the 2001 crime drama film Blow which starred Johnny Depp as George Jung. Other actors he frequently used included:
Noah Emmerich in Beautiful Girls, Monument Ave., Life, and (a cut scene in) Blow,
Demme was married to Amanda Scheer, with whom he had two children. Scheer later opened several popular Los Angeles bars, including Teddy's at the Roosevelt Hotel, named after former President Teddy Roosevelt.
Much of one edition of the IFC program Dinner for Five was given over to a description of Demme's last night and fond reminiscences about his life, mostly by Denis Leary and the show's host Jon Favreau. This touched on Demme's being a fan of the Green Bay Packers and his fondness for playing practical jokes.
The 2003 album Blackberry Belle, by The Twilight Singers led by Greg Dulli, was written in tribute to director Ted Demme, Dulli's close friend. Dulli had been working on another project, titled Amber Headlights (which would later see the light of day in 2005), but abandoned those sessions due to Demme's death. The recordings which followed, fueled in part by the memory of Demme, resulted in Blackberry Belle.