Born David Levy on June 2, 1810, he spent the first few years of his life as a British subject on St. Thomas in the West Indies. His father, Moses Elias Levy, came to Spanish Florida after the War of 1812 and became a pioneer in its settlement. David was educated primarily in Virginia, and at age seventeen he moved to live on his father's plantation outside Micanopy, Florida. While there he made numerous trips to St. Augustine and cultivated the acquaintance of many Spanish and East Florida families, including some officials of the federal government. Through these contacts he met and studied law with Robert Raymond Reid, who was later governor of the state and a federal judge. After being admitted to the bar in 1832, he was successful at practicing law in St. Augustine. He began his public career by becoming a delegate to the State constitutional convention in 1838 and clerk to the Territorial Legislature in 1841.

In 1841 Levy was elected democratic territorial delegate to the national House of Representatives and served in this capacity for four years. While in office he upheld the causes of the southern states, including slavery, and he fought for Florida's admittance to the Union. In 1845 Yulee was elected as Florida's first U.S. Senator, at the same time becoming the first Jew to serve in the Senate. He officially changed his name to David Levy Yulee in 1846, resuming the use of his family's original surname. He served two non-consecutive terms in the Senate, losing the 1850 election to Stephen Mallory but defeating Whig candidate, Thomas Brown, in 1854 to win a second term. While in the Senate he took strong stands to promote the building of iron ships and to improve the postal service, especially in his home state. Yulee also fought for the expansion of the number of slave states and territories in the Union, believing that without expansion the southern states would become static and lose political clout.

The establishment of the Florida railroad system is widely thought of as Yulee's greatest constructive achievement. He firmly believed that further economic development in the south would lead to white immigration, thus nullifying southern fears of that time of "Africanization" (a majority black population). Florida owes Yulee, more than any other single politician, for his efforts under the Internal Improvement Act of 1855, which made it possible for Florida's railroads to receive vital land grants. While Florida was still relatively unsettled, he utilized federal land grants as a basis for credit to build an extensive system of railroads through the wilderness. The railroad program favored by Yulee included a line from the Atlantic to the Gulf of Mexico. This railroad was incorporated in 1853 as the Florida Railroad, with construction beginning in 1856 at Fernandina and reaching Cedar Key by 1861. Eventually mail and other delivery contracts were obtained, but the start of the Civil War put a stop to further productive plans. He was president of the Florida Railroad Company from 1853 to 1866, and president of the Peninsular Railroad Company, the Tropical Florida Railway Company, and the Fernandina and Jacksonville Railroad Company. His work earned him the title of "father of Florida's railroads."

Leading up to the Civil War, Yulee exercised his considerable political connections on behalf of the South and the secessionist cause. When hostilities broke out, Yulee left the Senate and returned to Florida. The Florida Railroad, in which he had a large private stake, became a unit of the Confederate government. Railroad offices were located in Gainesville and Yulee traveled between Fernandina, his home, and these offices until union troops forced the evacuation of Fernandina in 1862. Early in his Senate career, in 1846, Yulee had begun constructing a family estate and large sugar plantation near Homosassa on the Gulf coast. When the family was forced to abandon Fernandina, Yulee moved to the Homosassa plantation and he spent most of the next two years there or in Gainesville managing the railroad. In 1864, while in Gainesville, Yulee received news that the plantation and family home had been destroyed by Union troops and his family had been forced to flee. He and his family lived with friends until Yulee was able to build a new home and plantation, Cottonwood, in Archer. At the end of the war, Yulee was captured because of his support of the Confederacy and interred for several months at Fort Pulaski near Savannah.

The last two decades of his life were devoted to restoring the vitality of the Florida railroad system and expanding his real estate ventures. At the end of his career, Yulee sold the Florida Railroad to outside investors and retired to Washington, D.C., where his wife Nancy Wickliffe Yulee had family. David Levy Yulee died in October 1886 in New York State. In eulogizing him, the Washington Post summarized his importance to the development of Florida by stating, "as Senator from Florida, he was better known than the state he represented."