DeMunn was born in Buffalo, New York, the son of Violet (née Paulus) and James DeMunn, and a stepson of actress Betty Lutes DeMunn. He graduated from Union College with a Bachelor of Arts in English.
He moved to the United Kingdom in 1970, receiving theatrical training at the Bristol Old Vic Theatre School. When he returned to the United States in 1972, he performed in a Royal Shakespeare Company National Tour's production of King Lear and A Midsummer Night's Dream. After this he starred in several off-Broadway productions, including Bent, Modigliani, and A Midsummer Night's Dream. DeMunn also participated in productions of developing plays at the Eugene O'Neill Theater Center. In 1983 he starred in a production of K2, which earned him a Tony Award nomination. He most recently starred in Death of a Salesman at San Diego's Old Globe Theater in 2012 and A Family For All Occasions at the Bank Street Theatre in 2013.
DeMunn is known for his collaborations with director Frank Darabont, who has cast him in films such as The Shawshank Redemption, The Green Mile, The Majestic and The Mist. He also appeared in the 1988 remake of The Blob, which Darabont co-wrote. He also narrated the audiobooks for Dreamcatcher and The Colorado Kid. In 1995, he won a CableACE Award as Best Supporting Actor in a Movie or Miniseries for his portrayal of serial killer Andrei Chikatilo in the HBO film Citizen X and received a Primetime Emmy Award for Outstanding Supporting Actor in a Miniseries or a Movie nomination.

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