Born in Barreiro, Setúbal District, Cancelo started playing football with local Barreirense. He joined Benfica’s youth system in 2007 at the age of 13, where he played as both right and left back.

On 28 July 2012, Cancelo made his debut with Benfica’s first team in a friendly against Gil Vicente where he played the full 90 minutes as a right back. Despite being registered with the B-side, he was touted as a possible replacement to Maxi Pereira in the seniors; until 2013 he also represented the juniors, and on 18 May of that year he scored the two decisive goals in a 2–1 win over Rio Ave to win the national championship.

Cancelo represented Portugal in the 2012 UEFA European Under-19 Championship. He was also selected for the following edition, in Lithuania.

In January 2013, Cancelo was involved in a car accident on the A2 in Seixal which killed his mother, Filomena. He and his brother received only minor injuries. On 23 June 2019, Cancelo’s girlfriend Daniela Machado announced that they were expecting their first child.

Cancelo played his first competitive game with Benfica’s main squad on 25 January 2014, coming on as a late substitute in the 1–0 home success against Gil Vicente for the Taça da Liga, which was later won. His maiden appearance in the Primeira Liga occurred on 10 May after they had already been crowned league champions, and he started in a 1–2 loss at Porto.

On 20 August 2014, Cancelo joined Valencia on a one-year loan deal with the option to purchase for €15 million. Although his economic rights were owned by Peter Lim, a loan was arranged to take him to Valencia due to Lim’s purchase of the latter club. His La Liga debut occurred on 25 September, playing the entirety of a 3–0 home win over Córdoba; He initially started as a substitute and appeared in the round of 16 round of the Copa del Rey in the first leg against Rayo Vallecano. He would also occasionally move to the right wing and later his good performances, specially against Levante on 12 April 2015, in which he was awarded the man of the match. Throughout the season he was used a second choice right-back behind Antonio Barragán, finishing the season with 13 appearances, across all competitions. Cancelo’s performances helped Valencia reach Champions League, leading on 25 May, Cancelo agreeing to a permanent contract with the Spanish club until 30 June 2021, for a transfer fee of €15 million.

Cancelo was part of the under-21 squad that competed in the 2015 European Championships. He replaced left-back Raphaël Guerreiro midway through the second half of the 5–0 semi-final win against Germany for his only appearance of the tournament, in a final runner-up finish to Sweden.

Cancelo was called up for the first time to the senior team by head coach Fernando Santos on 26 August 2016, playing the full 90 minutes of a 5–0 friendly win over Gibraltar in Porto on 1 September and scoring the third goal. In the following month he added another two, in as many 2018 FIFA World Cup qualifiers against Andorra (6–0, home) and Faroe Islands (away, same score).

On 22 August 2017, Cancelo joined Inter Milan on a one-year loan deal until 30 June 2018 with the option of making the move permanent. The deal was part of a loan exchange, with Geoffrey Kondogbia moving in the other direction. He made his Serie A debut four days later, replacing Antonio Candreva in the 83rd minute of a 3–1 success at Roma.

Cancelo suffered a knee ligament injury in late August 2017 while on international duty, going on to be sidelined for one-and-a-half months. He returned to action during the 3–2 home victory over A.C. Milan in the Derby della Madonnina, featuring 20 minutes. After a few weeks of adpation in the Serie A, Cancelo made his debut as a starter at the Coppa Italia in a home victory against Pordenone. On 17 April 2018, he scored his first league goal with a free kick in a 4-0 home victory over Cagliari. During his phase of adaptation in Serie A, in which was added some tactical misunderstanding, his performances progressively improved, leading him to be included in Serie A’s Team of the Year. Despite his good performances during the season, the club opted to not buy Cancelo.

On 27 June 2018, Cancelo was signed by Juventus on a five-year contract for €40.4 million, making his domestic league debut on 18 August in a 3–2 away win against Chievo. He won his first trophy with the club in January 2019, featuring the entire 1–0 victory over Milan for the Supercoppa Italiana. He scored his first league goal the same month, as his team came from behind to defeat Lazio 2–1 at the Stadio Olimpico in Rome; he also helped win the decisive match-winning penalty later during the same game, which was subsequently converted by compatriot Cristiano Ronaldo. On 6 October, Cancelo provided an assist for Rodrigo Bentancur in a 2–0 away win over Udinese. On 7 December, Cancelo provided an assist for Mario Mandžukić in a 1–0 home win over against his former club Inter Milan in the Derby d’Italia.

In May 2018, Cancelo was included in a preliminary 35-man squad for the finals in Russia, but he did not make the final cut.

On 10 April 2019 Cancelo provided an assist for his compatriot Cristiano Ronaldo in a 1–1 away draw in the first leg of Juventus’ Champions League quarter-final against Ajax, on 10 April. In the second leg in Turin on 16 April, Juventus eventually lost the match 2–1, and were eliminated from the competition. Four days later, Cancelo played in the Scudetto-clinching match against rivals Fiorentina, as Juventus won their eighth successive league title after a 2–1 home triumph.

On 7 August 2019, Cancelo joined Premier League champions Manchester City in a six-year deal worth £27.4 million plus Danilo being sent to Juventus in part-exchange, equalling to £60 million, making him the most expensive right-back ever. On 25 August 2020, Cancelo made his Premier League debut against Bournemouth appearing as a late substitute for Kyle Walker in a 3–1 victory. On 18 December 2019, Cancelo scored his first goal for City in a 3-1 away win over Oxford United in the quarter finals of the Carabao Cup. On 7 August 2020, Cancelo started as a left back in a second leg round of 16 tie in the UEFA Champions League against Real Madrid, which resulted in a 2–1 victory for Manchester City, which saw them progress into the quarter finals following a first leg victory. After a rough season, Cancelo impressed in his new role.

On 17 October 2020, Cancelo made his first league start for the new season after an injury in a 1-0 home win over Arsenal. On 3 November 2020, Cancelo scored his first Champions League goal for City in a 3-0 home win over Olympiacos in the group stage.