Born in Vincennes, Indiana, Richard Skelton was the son of Joseph E. Skelton (1878–1913), who died in 1913 shortly before the birth of his son, and Ida (née Fields) Skelton (1884–1967). In Skelton's lifetime there was some dispute about the year of his birth. Biographer Arthur Marx reported (from second hand information) that Skelton may have been born as early as 1906, and the year 1910 was sometimes cited as the year of his birth. In a People Magazine article in 1979, Skelton admitted that he fudged about his age, and was quoted as saying he was "in his seventies."

Skelton got one of his earliest tastes of show business with the circus as a teenager. Before that, he caught the show business bug at 10 years of age from entertainer Ed Wynn, who spotted him selling newspapers in front of the Pantheon Theatre, in Vincennes. After buying every newspaper Skelton had, Wynn took him backstage and introduced him to members of the show with which he was traveling. By age 15, Skelton had hit the road full-time as an entertainer, working everywhere from medicine shows and vaudeville to burlesque, showboats, minstrel shows and circuses. While performing in Kansas City, in 1930, Skelton met and married his first wife, Edna Stillwell. The couple divorced 13 years later, but Stillwell remained one of his chief writers.

Skelton caught his big break into two media at once: radio and film. In 1938 he made his film debut for RKO Radio Pictures in the supporting role of a camp counselor in Having Wonderful Time. Two short subjects followed for Vitaphone, in 1939: Seeing Red and The Bashful Buckaroo.

Skelton was hired by Metro-Goldwyn-Mayer to lend comic relief to its Dr. Kildare medical dramas, but soon he was starring in comedy features (as inept radio detective "The Fox") and in Technicolor musicals. When Skelton signed his long-term contract with MGM in 1940, he insisted on a clause that permitted him to work in radio (which he had already done) and on television (which was in its infancy). Studio chief Louis B. Mayer agreed to the terms, only to regret it later when television became a threat to motion pictures.

After appearances on The Rudy Vallee Show in 1937, Skelton became a regular in 1939's Avalon Time on NBC, sponsored by Avalon Cigarettes. On October 7, 1941, Skelton premiered his own radio show, The Raleigh Cigarette Program, developing a number of recurring characters including punch-drunk boxer "Cauliflower McPugg," inebriated "Willy Lump-Lump" and "'Mean Widdle Kid' Junior," whose favorite phrase ("I dood it!") soon became part of the American lexicon. That, along with "He bwoke my widdle arm!" (or other body part) and "He don't know me vewy well, do he?" all found their way into various Warner Bros. cartoons.

Skelton himself was referenced in a Popeye cartoon in which the title character enters a haunted house and encounters a "red skeleton." The Three Stooges also referenced Skelton in Creeps (1956): Shemp: "Who are you?" Talking Skeleton: "Me? I’m Red." Shemp: "Oh, Red Skeleton."

Other characters included "Con Man San Fernando Red," cross-eyed seagulls "Gertrude and Heathcliffe" and the singing cabdriver "Clem Kadiddlehopper," who was a country bumpkin with a big heart. Clem had a knack for upstaging city slickers, even if he couldn't manipulate his cynical father: "When the stork brought you, Clem, I shoulda shot him on sight!" Skelton would later consider court action against the apparent usurpation of this character by Bill Scott for the voice of Bullwinkle.[citation needed]

The comedian helped sell World War II war bonds on the top-rated show, which featured Ozzie and Harriet Nelson in the supporting cast, plus the Ozzie Nelson Orchestra and announcer Truman Bradley. Harriet Nelson was the show's vocalist.

It was during this period that Red divorced his first wife, Edna, and married his second wife Georgia. According to the director George Sydney, he met Georgia while visiting the set of The Harvey Girls (1945) where Georgia, also nicknamed Red, played one of the "bad" girls working at the Alhambra bar. Red and Georgia's only son, Richard, was born in 1945. Georgia continued in her role as Red's manager until the 1960s.

Skelton was drafted in March 1944, so his popular series was discontinued on June 6. Shipped overseas to serve with an Army entertainment unit as a private, Skelton led an exceptionally hectic military life. In addition to his own duties and responsibilities, he was often summoned to entertain officers late at night. The perpetual motion and lack of rest resulted in a nervous breakdown in Italy. He spent three months in a hospital and was discharged in September 1945. He once joked about his military career, "I was the only celebrity who went in and came out a private."