He was the son of Felipe de Diego Parajón, a Spanish Army Officer from Asturias, Spain, and Elisa Martínez Muñiz, a native of Puerto Rico.

While in Spain, de Diego attended the University of Barcelona to study law and collaborated with the newspaper El Progreso (Progress), founded by fellow Puerto Rican José Julián Acosta y Blanco, which attacked the political situation in Puerto Rico; this led to various arrests which lead to his being expelled from the University of Barcelona and eventually forced to leave Spain.

Some time after his arrival in Puerto Rico he traveled again to Cuba to continue his studies at the University of La Habana where he completed his degree in law.

De Diego did not accompany Muñoz Rivera and Matienzo Cintrón because he was an antimonarchist: he believed that Spain should be a Federal Republic and Mateo Sagasta's party followed the ideals of the monarchy.

On June 5, 1900, President William McKinley named de Diego, together with Rosendo Matienzo Cintrón, José Celso Barbosa, Manuel Camuñas, and Andrés Crosas to an Executive Cabinet under U.S.-appointed Governor Charles H. Allen.

The House of Delegates was subject to the U.S. President's veto power and voted for the island's right to independence and self-government and against the imposition of U.S. citizenship to Puerto Ricans, among other resolutions passed.

In 1914, Barceló, Muñoz Rivera and de Diego were members of an executive council that attempted to form an alliance between the Union and Republican Parties.

The Union Party under Barceló's leadership then resolved to adopt a different stance and to seek more autonomy which he believed would finally lead to independence.

[3] He was considered by Puerto Rican Socialist Party founder Juan Marí Bras to be the bridge between the two "great ideological pillar[s] for independence" Ramón Emeterio Betances and Pedro Albizu Campos, in the 19th and 20th Centuries, respectively.

;[8] he travelled throughout the Caribbean and Spain seeking the support from what he called "Los hermanos de la misma raza" (Brothers of the same race) for Puerto Rico's independence.

[3] José de Diego's memory has been honored in Puerto Rico by having his birthdate observed as an official holiday as well as the naming of schools, avenues, and a highway after him.