Douglas Yee was born in Detroit, Michigan to parents who had fled China just before World War II. His father was an engineer and his mother a radiologist. His mother comes from a large family, all of whom left China and settled either in Hong Kong or in the United States; they remain close, getting together often for family events and holidays. Yee has one sibling, an older sister who took a PhD in social work at the University of Chicago.

Yee attended a boarding school for high school; he did not evince an early passion for science, but he did like the puzzle of chemistry, especially organic chemistry, when he was in college at the University of Michigan. He ended up majoring in zoology and anthropology. During the summers he worked in Joan Bull's lab at the National Institutes of Health, where he became interested in cancer and human genetics. He entered medical school at the University of Chicago; there he studied Epstein-Barr virus in Elliott Kieff's lab and realized that he wanted to concentrate on lab research rather than clinical practice. He married Janet Smith, with whom he now has two children. His internship and residency followed at North Carolina Memorial Hospital in Chapel Hill, North Carolina; his specialty was internal medicine, his subspecialty oncology. After his residency he accepted a staff fellow position at the National Cancer Institute. He began his research on the role of insulin-like growth factors (IGF) in Marc E. Lippman's lab. From there he went to an instructorship at Georgetown University Medical Center; then to an assistant professorship at University of Texas Health Science Center in San Antonio. He is now an associate professor there; he continues his work on IGF, publishing many articles and winning a number of grants and awards.