Dreyer was born in Copenhagen and went immediately into foster care, but he was adopted in 1891.
He first became a journalist but by 1913 he was a caption writer for silent films. His first film as a director was Praesidenten (1919), followed by (among others) Blade af Satans Bog (1921), La Passion de Jeanne d'Arc (1928), Vampyr (1932), the documentary Vredens Dag (1942), Ordet (1955) and finally Gertrud (1964).
From 1921 to 1924 he lived and worked in Germany. Vredens Dag, with its obvious anti-Nazi sentiments, forced him into exile in neutral Sweden for the rest of World War II. Between Vampyr and Vredens Dag he returned to journalism and after the war he also worked for a time as a film theater manager for the Danish government in Copenhagen.
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