He served in the United States Army during World War II, was commissioned as an Army officer after graduation from Signal Corps Officer Candidate School at Fort Monmouth, NJ. He then returned Hollywood to more musicals. Beginning with Mother Wore Tights (1947) Dailey became the frequent and favorite co-star of Betty Grable. His performance in their film When My Baby Smiles at Me in 1948 garnered him an Academy Award nomination for Best Actor.
In 1949, he showcased his singing abilities by recording four songs for Decca Records with the enormously popular Andrews Sisters (Patty, Maxene, and LaVerne). Two of the songs were Irish novelties ("Clancy Lowered the Boom!" and "I Had a Hat (When I Came In)"). The other songs, Take Me Out to the Ballgame and In the Good Old Summertime capitalized on the success of two MGM blockbuster films of the same names from that same year, starring Gene Kelly and Frank Sinatra, and Judy Garland and Van Johnson, respectively. Dailey and The Andrews Sisters were an excellent match, and their vocal stylings on these selections were full of gaeity and fun.
In 1950, he starred in A Ticket to Tomahawk, often noted as one of the first screen appearances of Marilyn Monroe, in a very small part as a dance-hall girl. That same year, he played the title role in When Willie Comes Marching Home, for which he received a Golden Globe nomination for Best Actor in a Musical or Comedy in 1951. He also portrayed baseball pitcher Dizzy Dean in a 1952 biopic, Pride of St. Louis.
One of his most notable roles was as Terence Donahue in the 20th Century Fox musical extravaganza There's No Business Like Show Business (1954), which featured Irving Berlin's music and also starred Ethel Merman, Marilyn Monroe, Johnnie Ray, and Donald O'Connor, whose wife Gwen divorced O'Connor and married Dailey at about the same period.
He played G.I. turned advertising man Doug Hallerton in It's Always Fair Weather (1955). The film was screened at drive-in theaters and was not a box-office success, although it did receive good reviews. He starred opposite Cyd Charisse and Agnes Moorehead in Meet Me in Las Vegas (1956). The following year, he portrayed "Jughead" Carson in the drama The Wings of Eagles, a biographical film on the life of Frank Wead, starring John Wayne. It was Dailey's last film for MGM.
As the musical genre began to wane in the late-1950s, he moved on to various comedic and dramatic roles on television, including appearing as one of The Four Just Men (1959) in the Sapphire Films TV series for ITV, Michael O'Hara The Third in the television movie Michael O'Hara the Fourth and the NBC Mystery Movie series Faraday & Company.
In the late 1960s, Dailey toured as Oscar Madison in a road production of The Odd Couple. co-starring Elliott Reid as Felix Unger and also featuring Peter Boyle as Murray the cop.
From 1969-1971, Dailey was Governor opposite Jennifer Sommars's J.J. in the sitcom The Governor & J.J. which revolved around the relationship between his character, the conservative governor of an unnamed state and his liberal daughter Jennifer Jo. His performance won him the Golden Globe for Best Actor in a Television Musical or Comedy, making him the first actor to receive the award in 1970.
His sister was actress Irene Dailey, who starred in Another World.