Bhagyaraj was born in Vellankoil near Gobichettipalayam in Erode district in Tamil Nadu. His father was Krishnaswamy and his mother was Amaravathiamma. Bhagyaraj's Mother tongue was Telugu. Initially he was married to actress Praveena. She died in August 1983 due to illness. Later he married Poornima Jayaram. The couple have a daughter Saranya Bhagyaraj who debuted in the film Parijatham and a son Shanthnu Bhagyaraj who made his debut in Sakkarakatti which released in 2008. His assistant directors were Parthiban and Pandiarajan; both went on to become director and actors.
Beginning his career as an assistant to directors G. Ramakrishnan and Bharathiraja, Bhagyaraj became recognized for his scriptwriting talent. Among his early work was the script for Bharathiraja's films, Kizhake Pogum Rail (1978) and Tik Tik Tik (1981). He made his directorial debut with Suvarillatha Chiththirangal in 1979. He quickly established his own concern and started producing a string of distinctive films made mainly in the Tamil language. Bhagyaraj often stars in lead roles of the films he scripts and directs, effectively carving out a niche for himself in the actor-auteur vein. His style of film making is notable for its relatively elaborate, witty, and double-entered-laced script and socially themed framework. His on-screen personae are typically characterized by their ironic sense of humor and intelligent bravado.
He has made forays into Bollywood, directing the likes of Amitabh Bachchan and Anil Kapoor. He wrote books like Vaanga Cinemavai Pattri Pesalam, Neenga Nenaicha Saadikkalaam, Ungal Bhagyarajin Kezhvi Bhadhil (Five Parts).