Yuli Daniel was born in Moscow, the son of the Yiddish playwright M. Daniel (Mark Meyerovich Daniel). In 1942, during World War II, Yuli Daniel lied about his age and volunteered to serve on the 2nd Ukrainian and the 3rd Belorussian fronts. In 1944 he was critically wounded in his legs and was demobilized.

In 1950, Daniel graduated from Moscow Pedagogical Institute, and went to work as a schoolteacher in Kaluga and Moscow. He also published translations of verse from a variety of languages, and, like his friend Andrei Sinyavsky, wrote topical stories and novellas ("Moscow Speaking") and smuggled them to France to be published under pseudonyms. Daniel married Larisa Bogoraz, who later also became a famous dissident.

In 1965, Daniel and Sinyavsky were arrested and tried in the infamous Sinyavsky-Daniel trial. Both writers entered a plea of not guilty. On February 14, 1966, Daniel was sentenced to five years of hard labor for "anti-Soviet activity".

In 1967, Andrei Sakharov appealed directly to Yuri Andropov on behalf of Daniel. Sakharov was told that both Daniel and Sinyavsky would be released under a general amnesty on the fiftieth anniversary of the October revolution. This turned out to be false, as the amnesty did not apply to political prisoners.

According to Fred Coleman, "Historians now have no difficulty pinpointing the birth of the modern Soviet dissident movement. It began in February 1966 with the trial of Andrei Sinyavsky and Yuli Daniel, two Russian writers who ridiculed the Communist regime in satires smuggled abroad and published under pen names. They didn't realize at the time that they were starting a movement that would help end Communist rule." Sinyavsky and Daniel did not intend to oppose the Soviet Union. Daniel was genuinely worried about a resurgence of the Cult of Personality under Khrushchev, which inspired his story "This is Moscow Speaking", while Sinyavsky affirmed that he believed Socialism was the way forward but that the methods employed were at times erroneous.

After four years of captivity in Mordovia labor camps of Dubravlag and one year in Vladimir Prison, Daniel refused to emigrate (as was customary among Soviet dissidents) and lived in Kaluga.

Before his death Bulat Okudzhava acknowledged that some translations published under Okudzhava's name had in fact been ghostwritten by Daniel, who was on the list of authors banned from being published in the Soviet Union.