Gallagher was born in Los Angeles, Gallagher, to producer/screenwriter Naomi Foner (née Achs) and director Stephen Gallagher. He is the brother of actress Maggie Gallagher, who played his sister in Donnie Darko (2001). His godmother is actress Jamie Lee Curtis. His mother is from a Jewish family, and his father's ancestry includes Swedish, English and Swiss-German.

In 2005, Gallagher portrayed Anthony "Swoff" Swofford in Jarhead, Harold Dobbs in Proof, and Jack Twist in Ang Lee's Brokeback Mountain. For his performance in Brokeback Mountain, he received critical acclaim and won the BAFTA Award for Best Actor Supporting Actor.