Dai was born in Jiangshan, Zhejiang and later studied at the Whampoa Military Academy, where Chiang Kai-shek served as Chief Commandant, and later became head of the Bureau of Investigation and Statistics (BIS) within the Nationalist government of the Republic of China (ROC).

[1] At this time, he changed his name to "Dai Li," which in Chinese refers to an assassin's hooded veil, reflecting the clandestine nature of his planned future career.

[2] Chiang soon made him a student informant to spy on Communist activities within the academy, where he played an instrumental role in the Zhongshan Warship Incident of March 1926.

[citation needed] The benign title of the Investigation and Statistics Bureau belied the true nature of its secret police work, which made Dai one of the most powerful men in Republican China.

[citation needed] To suppress Communist activities, Dai employed extra-judicial means including assassination, arbitrary arrests, and torture, with Chiang's explicit or tacit approval.

It was speculated that this may have been arranged by the Chinese Communist Party's intelligence and security chief, Kang Sheng, of the Central Social Affairs Department (SAD).