David Anthony Rice, known as Tony, was born in Danville, Virginia, on June 8, 1951. His family moved through several states while his father looked for work and settled in Los Angeles. His father, Herb Rice, played mandolin and taught each of his four sons an instrument: Tony and Wyatt took guitar, Larry mandolin and Ronnie upright bass. The Southern California bluegrass scene of the 1960s, where the Kentucky Colonels of Roland and Clarence White were the model, shaped all of them. In 1960, at nine, Rice met Clarence White and was allowed to try White's 1935 Martin D-28. He bought that guitar in 1975, and it became known by its serial number, 58957.

In 1970 he moved to Kentucky and joined the Bluegrass Alliance, after mandolinist Sam Bush heard him at Carlton Haney's festival in Reidsville, North Carolina. He then joined banjoist J.D. Crowe's New South, where he played guitar and sang lead. When Ricky Skaggs joined in 1974, the lineup of Rice, Crowe, Skaggs, Jerry Douglas on Dobro and Bobby Slone on bass recorded an acoustic album for Rounder that became the label's best seller to that point.

Rice met the mandolinist David Grisman while working on a Rounder album by the banjoist Bill Keith, and soon moved to California to join Grisman's new all-instrumental quintet. To keep pace with its jazz-influenced material he studied chord theory, learned to read charts and took lessons in improvisation from the guitarist John Carlini. The David Grisman Quintet's self-titled debut, recorded in 1976 and released in 1977, is regarded as a landmark of acoustic string-band music, and it includes Rice's tune "Swing 51." His closest contact with the jazz tradition came on October 7, 1978, when Rice, Grisman, mandolinist Mike Marshall and bassist Eddie Gomez recorded with Stéphane Grappelli the first sessions for Hot Dawg. Grappelli plays on "Minor Swing" and "16...16" on the finished album, and Rice contributed two of his own tunes, "Devlin" and "Neon Tetra."

He left Grisman's group in 1979 to make Acoustics, a jazz-inspired album. It includes Wes Montgomery's "Four on Six" alongside Rice originals, with Sam Bush, Richard Greene, Mike Marshall, Grisman and bassist Todd Phillips. The same year came Manzanita, credited like the records that followed to the Tony Rice Unit, a bluegrass and folk album with Bush, Skaggs, Douglas and Phillips, plus Grisman and the violinist Darol Anger on one track each. In 1980 the Unit made Mar West, which AllMusic calls jazz-tinged and which includes Miles Davis's "Nardis," and later records took the "spacegrass" label further: Still Inside (1981) and Backwaters (1982), the latter built around "My Favorite Things," "A Child Is Born" and "On Green Dolphin Street" as well as Rice's own pieces. In 1980 he also recorded the duo album Skaggs & Rice of old-time and gospel songs and, with Crowe, fiddler Bobby Hicks, mandolinist Doyle Lawson and Phillips, founded the Bluegrass Album Band, which recorded six volumes for Rounder between 1981 and 1996.

He then built a body of singer-songwriter work around his baritone and his guitar: Church Street Blues (1983), Cold on the Shoulder (1984), Me & My Guitar (1986) and Native American (1988), with songs by Gordon Lightfoot, Joni Mitchell, Phil Ochs, Tom Paxton, Bob Dylan and Mary Chapin Carpenter. He recorded flatpicking duets with Norman Blake, made albums with his brothers as the Rice Brothers, and played on four of Béla Fleck's records: Double Time (1984), Drive (1988), Tales from the Acoustic Planet (1995) and The Bluegrass Sessions (1999). He shared a Grammy for Best Country Instrumental Performance for the New South's "Fireball," presented in 1984, and the International Bluegrass Music Association named him its guitar performer of the year six times, in 1990, 1991, 1994, 1996, 1997 and 2007.

The 1990s brought him back to Grisman and to jazz repertoire. On February 4 and 5, 1993, he joined Grisman and Jerry Garcia for two unrehearsed evenings of folk and bluegrass at Grisman's studio, tapes that circulated for years as bootlegs before Grisman issued them as The Pizza Tapes in 2000. His 1994 duo album with Grisman, Tone Poems, used a different vintage guitar and mandolin on each track. That year he was also diagnosed with muscle tension dysphonia, the condition that ended his singing in live performance, and his later work leaned toward the guitar. In 1995 he made River Suite for Two Guitars with Carlini, which includes "Send in the Clowns," "Nardis" and "Summertime." In 1997 he joined his brother Larry, Chris Hillman and Herb Pedersen as Rice, Rice, Hillman & Pedersen, and the Unit's Unit of Measure (2000) includes a reading of Django Reinhardt's "Swing '42." In the 2000s he toured and recorded with Peter Rowan, releasing You Were There for Me (2004) and Quartet (2007).

Rice was inducted into the International Bluegrass Music Hall of Fame in 2013, and the ceremony was his last live performance on guitar; a diagnosis of lateral epicondylitis in 2014 made playing painful. In 2015 he said he would not return to public performance until he could play as he had before. He passed away at his home in Reidsville, North Carolina, on December 25, 2020, at the age of 69.

Rice is ranked among the guitarists who changed what a flatpicked acoustic guitar can do. His rhythm playing was driving and exact, and his solos were built from clear melodic ideas rather than flash. Ricky Skaggs called him the most influential acoustic guitarist of the previous fifty years, and Grisman called him a complete musician. His first model was Clarence White, whose inventive lead playing he heard as a boy, and his vocal repertoire drew heavily on the folk revival and its songwriters. He is first of all a bluegrass and newgrass guitarist, and most of his catalog is bluegrass, folk or singer-songwriter material.

His jazz side is real and documented, though it is one thread in the work rather than its center. It came through Grisman's "Dawg music," which draws on Django Reinhardt's 1930s swing, through his lessons with Carlini, and through the Tony Rice Unit, whose "spacegrass" records pair bluegrass instrumentation with jazz repertoire: "Four on Six," "Nardis," "My Favorite Things," "On Green Dolphin Street." River Suite for Two Guitars extends that into a full duo record of standards and originals. Younger acoustic players, including the members of Punch Brothers and the guitarist Molly Tuttle, have cited his records as formative.