As a child, Alter studied Hindi among other subjects in Mussoorie. Consequently, he came to be occasionally referred to as the "Blue-eyed saheb with impeccable Hindi." He was educated in Mussoorie's Woodstock School. At 18, Alter left for the U.S. for higher education and studied at Yale University for a year before returning to India upon losing interest in studies. The following year, he obtained work as a teacher at St. Thomas School, Jagadhri, in Haryana. He worked there for six months, simultaneously coaching his students in cricket. Over the next two and a half years, Alter worked several jobs, teaching for a while at Woodstock School, Mussoorie, and working at a hospital in the U.S., and returning to India before continuing to work at Jagadhri. At Jagadhri, he began to watch Hindi films. It was during this time that he saw the Hindi film Aradhana, which proved to be a turning point in his career and drifted towards a career in acting, inspired by the lead actor Rajesh Khanna. He headed to Film and Television Institute of India (FTII) in Pune, where he studied acting from 1972 to 1974 under Roshan Taneja. In a 2017 interview, he recalled, "I came to Mumbai to become Rajesh Khanna; didn't come to act on stage."
He was the lead actor in "Once Upon A Time", a collection of five short stories presented as vignettes, directed by Sujata Soni Bali and co-starring prominent stage actor and TV personality Sunit Tandon. The production was last staged in Mumbai on 17 June 2017.
In September 2017, Alter was diagnosed with Stage IV skin cancer (squamous cell carcinoma). His thumb had been amputated a year earlier because of the condition. He died on 29 September at his residence in Mumbai. A statement released on behalf of his family read: "It is with sadness we announce the death of our beloved Tom Alter, actor, writer, director, Padma Shri, and our dear husband and father. Tom passed away Friday night at home with his family and close family members in attendance. We ask for their privacy to be respected at this time."