After teaching at the University of Minnesota, Ohio Wesleyan University, and the University of Iowa, Dahlstrom joined the faculty at the University of North Carolina at Chapel Hill in 1953, initially in the Psychiatry Department. In 1957, he moved to the Psychology Department, where he remained active until his retirement in 1993.
Dahlstrom's professional work focused on the assessment of personality, and he was acknowledged as the world's leading authority on the Minnesota Multiphasic Personality Inventory (MMPI). Dahlstrom emphasized individual differences and respect for all persons. He devoted significant energy to trying to understand the role of ethnicity in individual functioning and personality assessment.