He grew up in Saint Paul, Minnesota, graduated from Hamline University, and played semi-professional hockey as a goaltender for the Minneapolis Millers.

He verbally sparred with media at the 1988 Winter Olympics, and was criticized for his coaching strategy, player selection, and gruff disposition.

[a] Peterson was the son of a barber, his family had German, Irish, and Norwegian heritage, and moved to Saint Paul, Minnesota, when he was two years old.

[1] Coach John Mariucci signed Peterson to play for the Minneapolis Millers in the American Amateur Hockey League, during the 1951–52 season.

[8] In 1953, Peterson began teaching business and coaching basketball at Braham, Minnesota, then moved to Minneapolis North High School in 1954.

[11][12] Peterson began working for the Amateur Hockey Association of the United States (AHAUS) in the mid-1970s, writing a manual on coaching goaltenders.

[1] Peterson later served as the goaltending coach for Vairo on the United States men's team which placed seventh in ice hockey at the 1984 Winter Olympics.

[10][13] As head coach of the United States men's team at Ice Hockey World Championships, Peterson led them in 1985, 1986, and 1987.

[1][10] National team general manager Art Berglund stated, "it doesn't matter whether it's high school, college or the pros, [Peterson] knows how to handle young men", and that "he's been part of our developmental program for years".

[10] Chicago Tribune journalist Bob Verdi felt that Peterson was expected to be a father figure to the players, who played a schedule of exhibition games with the national team during the 1987–88 season.

[16] Peterson called the international media "dishonest, lazy and uninformed", and also stated "I have a tough time believing some of you have ever seen a hockey game".

[16] Sports Illustrated wrote that United States men's team "massively underachieved" with a seventh-place finish, and noted that twelve of the players were in the NHL within four years of the Olympics.

Sports Illustrated also wrote that the exhibition season prior to the Olympics included games against college teams, which were easily defeated while falling into "bad defensive habits".

[13][17] Patrick Reusse wrote in the Star Tribune, that Peterson later proved he could coach by leading a lesser-talented team to a fourth-place finish at the 1992 Winter Olympics.