Waterman’s acting career began in childhood. His first role was in Night Train for Inverness (1960). He appeared in two small stage roles for the Royal Shakespeare Company’s 1960 season. In 1961, at the age of 13, he played the part of Winthrop Paroo in the Adelphi Theatre production of The Music Man. A year later, he starred as William Brown in the BBC TV series William based on the Just William books of Richmal Crompton. Waterman played the rôle of Oliver Twist in the production of the Lionel Bart musical Oliver! staged at the Mermaid Theatre, London, in the early 1960s, and appears on the cast recording released in 1961. Waterman was a series regular in the 1962 CBS comedy Fair Exchange, playing teenage son Neville Finch. Waterman was in the original cast of Saved, the play written by Edward Bond, and first produced at the Royal Court Theatre in November 1965. He had a major rôle in the film Up The Junction (1967) his character Peter, played the boyfriend of Polly played by actress Suzy Kendall in the star studded cast of this landmark film.

In the early 1970s Waterman appeared in the BBC television series Colditz as a young Gestapo officer. He played the brother of a victim of Count Dracula (Christopher Lee) in the Hammer film Scars of Dracula (1970), and the boyfriend of Susan George in Fright (1971). He appeared alongside Richard Harris and John Huston in a Hollywood western, Man in the Wilderness (1971). He was a member of the company of actors who featured in The Sextet (1972), a BBC 2 series which included the Dennis Potter drama Follow the Yellow Brick Road, and Waterman later appeared in the same dramatist’s Joe’s Ark (Play for Today, 1974). Both plays were directed by Alan Bridges. Also in 1974, Waterman appeared in episode 4 of the second series of the comedy programme Man About the House entitled “Did You Ever Meet Rommel”, in which he played a friend of Robin, a German student by the name of Franz Wasserman (an evident play on his own surname).

In 1976 Waterman released his first album, Downwind of Angels, arranged and produced by Brian Bennett. A single, “I Will Glide”, was released from the album, but did not enter the top 40. The backing singers on “I Will Glide” were the choir of Belmont School, where Brian Bennett’s son, Warren, was a pupil.

In 1978, Waterman returned to the RSC to play Sackett in Bronson Howard’s comedy Saratoga.

He became well known as DS George Carter in The Sweeney during the 1970s. As well as starring as Terry McCann in Minder, Waterman sang the theme song, “I Could Be So Good for You”, which was a top three UK hit in 1980 and a top ten hit in Australia. It was written by his then-wife Patricia along with Gerard Kenny. Waterman also recorded a song with George Cole: “What Are We Gonna Get For ‘Er Indoors?”

In 1982, Waterman starred in the musical Windy City. A relatively short-lived production, the cast included Anton Rodgers, Diane Langton, Victor Spinetti and Amanda Redman, with whom Waterman had an eighteen-month affair during the run of the musical and with whom he later went on to star in the TV series New Tricks. Windy City closed on 26 February 1983 after 250 performances. Waterman took the lead male role in the BAFTA Award-winning BBC adaptation of Fay Weldon’s The Life and Loves of a She-Devil (1986).

In 1983, Waterman narrated an eight-part BBC documentary series about Asian martial arts titled The Way of the Warrior.

In 1988, Waterman voiced Vernon’s dim-witted, stupid and food loving sidekick Toaster in the children’s animated series Tube Mice which also starred George Cole.

Waterman was banned from driving for three years in January 1991, following his second drink-driving conviction in four years.

Waterman sang the theme tunes to three more programmes in which he appeared: the comedy drama Stay Lucky with Jan Francis (Yorkshire Television/ITV 1989), sitcom On the Up (BBC 1990) and crime drama New Tricks (Wall to Wall television for BBC, 2003). In 1997, he appeared as John Danson (the head of the largest UK smuggling network) in series 3 of the UK TV drama The Knock.

He was a regular cast member in every season of New Tricks, from 2003 to 2014. After expressing his intent to leave the series during its final season (2015), he appeared in only the first two episodes. He recited excerpts from the journal of Walter H. Thompson for the UK history series Churchill’s Bodyguard. He appeared on stage in Jeffrey Bernard is Unwell by Keith Waterhouse and as Alfred P. Doolittle in the 2001 London revival of My Fair Lady. He narrated the reality-format television programme Bad Lads’ Army and appeared in the 2009 BBC2 miniseries Moses Jones.

Waterman and Pam Flint have been friends from 1996. She was diagnosed with bladder cancer in 2006; surgery saved her life. In November 2011, they were married.

This running joke is based on Waterman having sung the theme tunes for at least four of the programmes in which he has starred, namely for Minder, Stay Lucky, On the Up and New Tricks. In November 2006, Waterman made a guest appearance in Comic Relief Does Little Britain Live, alongside the comedy character version of himself.

Waterman’s marriage to Lenska ended because of his violent behaviour towards her. In March 2012 he caused controversy with some comments on this issue: “It’s not difficult for a woman to make a man hit her. She certainly wasn’t a beaten wife, she was hit and that’s different.” The interview was broadcast in full on Piers Morgan’s Life Stories on ITV in May 2012.

Waterman is a fan of Chelsea F.C. His love of football was reflected in him being chosen to present Match of the Seventies from 1995 to 1996, a nostalgic BBC show celebrating the best football action from the 1970s. In 2015, his friend of many years, George Cole, aged 90, who had played Arthur Daley, died and Waterman delivered the eulogy at Cole’s funeral on 12 August.

In 2020, Waterman starred in the Australian drama-comedy film Never Too Late which had been filmed in Adelaide, South Australia the previous year.