Thompson was born in Ellensburg, Washington, and raised in Longview. He attended Central Washington University, where he studied business management, played football, and appeared in many school productions. He then moved to California and earned a Master of Fine Arts from the University of California, Irvine. He initially trained and pursued a career in musical theater, performing at Riverside Civil Light Opera's production of "The King and I", Long Beach Civic Light Opera's "Bittersweet", and several other musicals. In 1982, he was a resident actor at the Colorado Shakespeare Festival.
Thompson's athletic build and unique facial structure were key in the initial roles he was offered. He has stated that it has occasionally been a double-edged sword when it comes to auditioning for roles, but it has provided him with consistent work. Thompson said, "If you're very physical in stature, you're gonna get hired for action movies. The star's always going to be chasing someone so they need an equal adversary. I'm never going to play a nebbish geek."
Thompson was cast in The Terminator while still in school. He and Bill Paxton had minor roles as punk thugs.

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