Born in Dundee, Wallace started his career with Celtic, signing for the club in May 2003 on a four-year deal. A pacy left winger, Wallace made only a handful of first-team appearances in his first year, before scoring his first goal for Celtic in a 5–0 win over Dunfermline on 8 November 2003. Whilst clearly a skillful player, Wallace made only a few more first team appearances that season, as Alan Thompson remained the first-choice wide-left player at Celtic. Wallace did however pick up his first silverware at the end of the season, coming on as a second-half substitute for Stephen Pearson in Celtic’s 3–1 win over Dunfermline in the 2004 Scottish Cup Final.

The following season (2004–05) saw Wallace play more games for Celtic, including three appearances as a substitute in the Champions League. However he made little impact in either his league or European appearances. Wallace did however score a hat-trick in an 8–1 rout of Falkirk in a Scottish League Cup tie in September 2004. That performance earned him public praise from his manager, Martin O’Neill. Alan Thompson also said that Wallace was likely to succeed him in the future at left midfield.

With the arrival of new manager Gordon Strachan at the start of season 2005–06, Wallace found himself on the sidelines for the first few months. However, in late 2005, Strachan began to play Wallace at left-back in place of Mo Camara. This was a strange selection given Wallace’s slight build and inexperience of playing in a defensive role. Strachan persisted with this team selection for several weeks to the bemusement of fans who could clearly see Wallace’s lack of aptitude for playing in defence. Wallace’s own goal in the New Year game against Hearts at Tynecastle (Celtic still won 3–2) highlighted his lack of positional awareness in playing in defence. Towards the end of the season, new signing Mark Wilson replaced him at left back even though it was not his natural position (Wilson is a right back). Wallace played in the 2006 Scottish League Cup Final at left back, due to Wilson being cup-tied.

Wallace made two more appearances for Celtic at the start of season 2006–07. However, he was clearly no longer part of the plans of the Celtic management and was sold to Sunderland in August 2006 in a deal including teammate Stanislav Varga for a combined fee of up to £1,100,000.

Despite having a trial at Birmingham City, He joined Sunderland from Celtic on 31 August 2006 along with teammate Stanislav Varga. He made his first team debut on 9 September against Derby County and scored the winner in a 2–1 win. His arrival on Wearside saw him keep the number 33 that he wore at Celtic, which had previously been worn by former Sunderland favourite Julio Arca.

Wallace started the season as Sunderland’s first choice left-back despite several new defenders joining the club during pre-season. On 11 August 2007 Wallace lined up against Tottenham Hotspur on the first game of the season and successfully provided the 93rd minute assist that enabled Michael Chopra to score and Sunderland to win the game. This form continued into the second game away to Birmingham City when once again Wallace played an integral part in the decisive goal when he provided the free kick that eventually led to Stern John’s late equaliser. The match finished 2–2.

He scored his first goal of the season against Reading at the Stadium of Light in a 2–1 victory for Sunderland, scoring again in a 3–2 loss to Arsenal scoring the first ever goal for Sunderland at their first ever game at the Emirates Stadium. Despite his impressive season, Roy Keane stated he would consider offers for Wallace. Wallace was linked with a MLS side Toronto want to sign him but talks never materialised. On 18 January 2008 it was reported that Wallace had sustained an Anterior Cruciate Ligament knee injury and would therefore miss the rest of the 2007–08 football season. But in an unexpected turn of events, Wallace made his return on the final game of the season in a 1–0 loss against Arsenal.

In the 2008 summer transfer window, it was announced that Wallace had rejected an offer from Preston North End, so that he could fight for his place in the Sunderland squad. However, due to the summer signings at Sunderland, Keane told Wallace that he was even further down the pecking order and unlikely to get many games next season. Wallace signed a year-long loan at Preston with a view to a permanent deal at the end of the season. After being an un-used substitute two times, Wallace finally made his debut, coming on for Barry Nicholson, in a 1–1 draw against Sheffield Wednesday on 23 August 2008. He scored his first goal two months later in a 2–0 win over Watford. At Preston, Wallace soon became a fan favourite, due to the number of times he provided excellent crosses, mainly for Jon Parkin. Wallace signed a permanent four-and-a-half-year contract with Preston on 12 January 2009. In his first season, Wallace made 39 appearances, scoring five times along with nineteen assists.

Wallace made one full international appearance for Scotland, in a friendly match with Japan on 10 October 2009. He also made appearances for the Scotland B and Scotland under-21 teams.

Wallace transferred to fellow Championship club Burnley for an undisclosed fee on 2 July 2010, signing a three-year contract. Upon completion of the transfer, he was described by manager Brian Laws as “one of the best left-sided players in the Championship”. He was linked with a move to Burnley after the club had ended its interest in signing Hearts’s midfielder Andrew Driver.

The next season, Wallace was placed on the right of midfield for the first eleven games at the start of the season, before going on the left of midfield or wing before going back to right midfield. On 22 December 2012, Wallace scored his first goal of the season in a 2–2 draw against Birmingham City; his second came from a penalty, in a 2–0 win over Sheffield Wednesday and set up a goal for Keith Treacy on 1 January 2013. During the season, Wallace’s contract with Burnley was on the verge of expiring at the end of the season and he stated that he was willing to stay at Burnley. In early February, Wallace signed a two-year extension, keeping him until 2015. In May 2015, Wallace was released by Burnley after five seasons with the club, making a total of 165 appearances in all competitions, scoring 14 times.

On 10 July 2015, Wallace joined Championship team Sheffield Wednesday on a one-year deal following his release from Burnley. He scored his first goal for the club in a 2–1 defeat at Ipswich Town. His second goal for the club came in a 1–0 win over Fulham on 2 January 2016 in the Championship; a 25-yard dipping shot after cutting in from the right wing. With one game to play in the 2017–18 season, it was announced that his contract wouldn’t be renewed and he would be leaving at the end of the season.

On 21 September 2018, following a successful trial period, Wallace joined EFL League One club Fleetwood Town. He left Fleetwood in September 2019.

After five months without a club, Wallace signed a short-term contract with Scottish Premiership club St Mirren in February 2020. In June 2020, Wallace left Saints when his contract expired.