Born in Stenstorp, Sweden, Dalén graduated in mechanical engineering in 1896 from the Chalmers Institute at Göteborg and then spent a year at the Swiss Federal Institute of Technology at Zürich. For several years he researched and improved hot-air turbines, compressors, and air pumps and from 1900 to 1905 worked with an engineering firm, Dalén and Alsing. He then became works manager for the Swedish Carbide and Acetylene Company, which in 1909 became the Swedish Gas Accumulator Company with Dalén as managing director.

Dalén is remembered principally for his inventions relating to acetylene lighting for lighthouses and other navigational aids, and in particular an automatic light-controlled valve, for which he received the 1912 Nobel Prize for physics. The valve, known as ‘Solventil’, used the difference in heat-absorbing properties between a dull black surface and a highly polished one to produce differential expansion of gases, and thus to regulate the main gas valve of an acetylene-burning lamp. The lamp could thus be automatically dimmed or extinguished in daylight; this allowed buoys and lighthouses to be left unattended and less gas to be used. The system soon came into widespread use and is still in use today.

Another invention of Dalén's was a porous filler for acetylene tanks, ‘Agamassan’, that prevented explosions. It was ironic that in 1912 he was himself blinded by an explosion during the course of an experiment. This did not, however, deter him from continuing his experimental work up to his death.