Shelley was born to Margaret and John McNeish at 48 Milton Street, in Leigh. Margaret was an ex-mill worker in the town, while John was a fitter at the nearby Astley Green Colliery. He has a younger brother, Gary.
Shelley formed Buzzcocks with Howard Devoto after the two met at Bolton Institute of Technology (now the University of Bolton) in 1975 and subsequently travelled to London to see the Sex Pistols. Buzzcocks debuted in 1976 in Manchester, opening for the Sex Pistols.
In 1977, Buzzcocks released their first EP, Spiral Scratch, on their own independent label, New Hormones. When Devoto left the group shortly afterwards, Shelley took over as lead vocalist and chief songwriter. Working with producer Martin Rushent, the band went on to create such quintessential punk/new wave singles of the period as "Orgasm Addict", "What Do I Get?", and "Ever Fallen in Love (With Someone You Shouldn't've)" along with three LPs: Another Music in a Different Kitchen (1978), Love Bites (1978), and A Different Kind of Tension (1979). Difficulties with their record company and a dispute with Virgin Publishing over the UK release of their greatest hits record, Singles Going Steady, brought the band to a halt in 1981.
Shelley's debut album Sky Yen was recorded in 1974 but remained unheard until March 1980 when it was released on 12" vinyl on Shelley's own label, Groovy Records. It was recorded as one continuous piece of music with a purpose-built oscillator and was notable for its use of layered electronics and playback speed manipulation to achieve its experimental feel. Rooted in electronic music, it has garnered comparisons to krautrock. Also released on Groovy Records was the soundtrack LP Hangahar by Sally Timms and Lindsay Lee, which included Shelley as a musician, and an album by artists Eric Random, Barry Adamson and Francis Cookson under the name Free Agents. After these releases, Groovy Records never released another album.
In 1981, Shelley released his first solo single, the song "Homosapien", again produced by Martin Rushent. On this recording he returned to his original interests in electronic music and shifted emphasis from guitar to synthesiser; Rushent's elaborate drum machine and synthesiser programming laid the groundwork for his next production, the chart-topping album Dare! by The Human League. "Homosapien" was banned by the BBC for "explicit reference to gay sex", but this didn't stop it from becoming enormously popular in dance clubs in Europe and North America: on the US dance charts, "Homosapien" peaked at number fourteen. It was also at this time that Pete Shelley talked about his bisexuality, which had been implicit in many of the Buzzcocks songs he had written but now came to attention due to "Homosapien" and the BBC ban. The next year saw the controversial single followed by an LP of the same name.