Dodds entered municipal politics in 1981 when he stood unsuccessfully for the Enniskillen part of Fermanagh District Council. Four years later in 1985, he was elected to Belfast City Council for the religiously and socially mixed Castle electoral area in the north of the city.

Dodds soon rose to prominence in the party. He was elected for two one-year terms as Lord Mayor of Belfast in June 1988 (when he became the youngest ever Lord Mayor of Belfast aged 29) and June 1992. The same year, he stood unsuccessfully for the East Antrim constituency in the Westminster election. He was elected to the Northern Ireland Forum in 1996 and topped the poll in North Belfast in all three elections to the reconstituted Northern Ireland Assembly in 1998, 2003 and 2007. Dodds was awarded the OBE in 1997 for services to local government.

Dodds was Minister of Social Development in the Northern Ireland Executive from 21 November 1999 but resigned on 27 July 2000, then served again from 24 October 2001, when the devolved institutions were restored, until he was dismissed from office on 11 October 2002, shortly before the Executive and the Northern Ireland Assembly were collapsed by the UUP.

North Belfast had historically been strong territory for the DUP, with Johnny McQuade representing the constituency in the British House of Commons from 1979 to 1983. The DUP stood down in favour of the Ulster Unionist Party in Westminster elections in the late 1980s and 1990s, in order to avoid splitting the unionist vote. Then, in 2001, Dodds challenged sitting Ulster Unionist Party (UUP) MP Cecil Walker, despite the danger of losing the mixed constituency to an Irish nationalist. Dodds won just over 40% of the overall vote and with that a 6,387 majority over Sinn Féin’s Gerry Kelly, with the incumbent Walker being pushed into fourth place.

His constituency office was targeted by the Continuity IRA in 2003 when a viable improvised explosive device was left outside the office. The bomb was defused by British Army explosive experts. Dodds was witnessed at the scene with his suit soiled, his hair unkempt and women’s clothing hanging out of his briefcase.

His father Joe was a long-standing Democratic Unionist Party (DUP) member of Fermanagh District Council until his death in 2008. He is married to DUP politician Diane Dodds; they have two sons and one daughter, and live in Banbridge, County Down.

In April 2009, after a leaked report showing MPs’ expenses, Dodds had the highest expenses of any MP in Northern Ireland, ranking him 13th highest of all UK MPs.

Dodds is vice-chair of the All Party Parliamentary Flag Group. He was appointed to the Privy Council of the United Kingdom on 9 June 2010, when he entered Westminster after the general election as the new party leader in parliament. He remains in this post after eight years.

At the Twelfth of July 2013 Orange order parades, Dodds was knocked unconscious at Woodvale Avenue in the Greater Shankill area of North Belfast by a brick thrown by fellow Ulster loyalists rioting against Police Service of Northern Ireland roadblocks. The violence broke out following the decision by the Parades Commission to bar Orangemen from walking past the Irish republican Ardoyne area. Dodds had been expelled from the House of Commons chamber for using unparliamentary language by Speaker John Bercow on 10 July 2013, after Dodds had refused to withdraw his accusation that the Conservative Secretary of State for Northern Ireland Theresa Villiers was being “deliberately deceptive” in answering questions about her powers in respect of what he called the “outrageous” Parades Commission ruling.

In January 2018, the Renewable Heat Incentive scandal made Dodds even more important to the government in Westminster, because the collapse of the Executive for the first time since 2002, was met with a deal for an extra £1 billion in funding for Northern Ireland. In June 2018, Dodds stated that “anything that would diminish the Union of the United Kingdom would be a clear red line for us.”

In March 2019, Dodds was one of 21 MPs who voted against LGBT inclusive sex and relationship education in English schools.

He was defeated in the 2019 United Kingdom general election, losing his seat to Sinn Féin’s John Finucane.

Dodds was nominated for a life peerage in the 2019 Dissolution Honours and created Baron Dodds of Duncairn on 18 September 2020.. He made his maiden speech on 3 November 2020.