Initially, he was a member of Haywards Heath Harriers, but when he returned to London in 1975 he joined the Newham and Essex Beagles Athletics club, training as a sprinter. He began to be coached by Bob Mortimer, who suggested he try for decathlon. He competed in his first decathlon later that year in Cwmbran, Wales, which he won along with his next competition. In 1976, he won the AAA title and was 18th at the Montréal Olympic Games. The following year, he won the European Junior title and in 1978 came the first of his three Commonwealth titles. In 1979, he failed to finish in his only decathlon of that year, but won the long jump at the UK Championships.
Thompson worked as a fitness trainer and motivational speaker, as well as appearing at corporate events. He was also well known for his appearances in commercials for the drink Lucozade in the 1980s. Thompson's name was used for three officially licensed home computer games by Ocean Software in the 1980s: Daley Thompson's Decathlon, Daley Thompson's Supertest and Daley Thompson's Olympic Challenge.
Thompson was a natural showman who endeared himself to the British public with his irreverent personality and anti-establishment attitude. He won the BBC Sports Personality of the Year award in 1982, and was appointed an MBE in the 1983 New Year Honours, and promoted to the CBE in the 2000 New Year Honours.
At the 1984 Los Angeles Olympics, Thompson, who had just won his second Olympic decathlon gold medal, wore a T-shirt that read "IS THE WORLD'S SECOND GREATEST ATHLETE GAY?". United State sprinter Carl Lewis had been dealing with rumors of homosexuality and the shirt was regarded as being cruelly directed at Lewis. "The second athlete could be anybody, Carl Lewis, anybody" Thompson stated.
Thompson won his third Commonwealth title in 1986 but after that he never quite recaptured the superlative form of earlier years. In 1987, he suffered his first decathlon defeat for nine years when he finished ninth in the World Championships, and at his fourth Olympics in Seoul in 1988 he finished fourth. He made the Commonwealth Games team for the fourth time in 1990, but was forced to withdraw because of injury.
Thompson was forced to retire from athletics in 1992, due to a persistent hamstring injury. In the 1990s he played professional football for Mansfield Town and Stevenage F.C. and Non-League football for Ilkeston F.C. He also worked as fitness coach for Wimbledon F.C. and Luton Town football clubs. He also took part in motorsport, entering the Ford Credit Fiesta Challenge Championship in 1994.
In 1994 Thompson trained with Reading Football Club and even scored in a friendly against Leatherhead.
In August 2014, Thompson was one of 200 public figures who were signatories to a letter to The Guardian expressing their hope that Scotland would vote to remain part of the United Kingdom in September's referendum on that issue.
In 2015, he opened his own gym, Daley Fitness, located on Upper Richmond Road in London, UK.