Before his musical career, Pete originally worked as a special effects artist and stop motion animator for movies and television, including the Gumby, and Outer Limits TV series, as well as classic cult movies such as 7 Faces of Dr. Lao and The Wonderful World of the Brothers Grimm. At night, he would frequently sit in with Bakersfield Sound-oriented combos and early country-rock aggregations playing the pedal steel guitar. Through this scene he became acquainted with Chris Hillman and Gram Parsons of the Byrds, helping the group to replicate their newly country oriented sound onstage with banjoist Doug Dillard. After leaving the Byrds in 1968, Parsons and Hillman invited him to join their new band, the Flying Burrito Brothers. Subsequently, he left behind his career in visual effects and spent the next thirteen years as a professional musician.

One of the first pedal steel players to work in a rock context, Kleinow incorporated liberal use of electronic innovations like the fuzzbox and backwards recording techniques. As such, his style of playing was immediately influential upon second-generation players such as Jerry Garcia, Buddy Cage of the New Riders of the Purple Sage and sessionman Al Perkins. Respected as the "Hendrix of the steel guitar," he was rarely short of session work. Finding session work to be more lucrative, he left the Flying Burrito Brothers in 1971 and played for an eclectic range of artists, including Joe Cocker (Joe Cocker!, 1969), Delaney, Bonnie and Friends (To Bonnie from Delaney, 1970) and Little Feat (many albums including Sailin' Shoes, 1972). He also added steel guitar to records by Frank Zappa (Waka/Jawaka, 1972), the Bee Gees (Life in a Tin Can, 1973), John Lennon (Mind Games, 1973) and Fleetwood Mac (Heroes Are Hard to Find, 1974).

In 1974 Pete was part of a new band, Cold Steel, and then a reconstituted Flying Burrito Brothers. His first solo album, Sneaky Pete, was released in 1978 and The Legend and the Legacy followed in 1994.

He returned to special effects and created the dinosaurs for the comic film Caveman (1981), starring Ringo Starr and Barbara Bach. Throughout the 1980s and 1990s, Kleinow created special effects for movies such as The Empire Strikes Back, Gremlins, The Right Stuff, The Terminator, and Terminator 2, while continuing to work sporadically as a professional musician. In 1983, his work on the television miniseries The Winds of War was recognized with an Emmy Award for Special Visual Effects.

In 2000, he formed a group called Burrito Deluxe (also the name of a 1970 Flying Burrito Brothers' album) with Garth Hudson, former organist of The Band, Carlton Moody of the Moody Brothers on lead vocals and guitars, bassist Jeff "Stick" Davis of Amazing Rhythm Aces and drummer Rick Lonow. The group recorded two albums, Georgia Peach and 'The Whole Enchilada. His last performance was at a 2005 Gram Parsons' tribute concert. Kleinow was married and had three sons and two daughters.

He died at a convalescent home near the skilled nursing facility in Petaluma, California, where he had been living with Alzheimer's disease since 2006