Peet was born in New York to Charles Peet (a lawyer) and Penny (a social worker). Her father was a Quaker and her mother was Jewish, and Peet attended Friends Seminary with Liev Schreiber, as well as studied history at Columbia University, where she auditioned for acting teacher Uta Hagen. During her 4-year period of study with Hagen, Peet appeared in the off-Broadway revival of Clifford Odets's Awake and Sing.

Peet's first screen performance was a television commercial for Skittles. Her early roles included a guest starring role on Law & Order. She made her film debut in the 1995 film Animal Room. Peet maintained a steady acting career in relatively obscure indie movies.

Her first major role was as "Jack" in the 1999 TV series Jack & Jill (which aired for two seasons). Her first wide-release feature film role came in 2000, with The Whole Nine Yards, elevating her status from supporting actress to lead. That same year, she was voted one of the 50 Most Beautiful People in the World by People Magazine.

In 2005, she starred in the play This Is How It Goes, alongside Jeffrey Wright and Ben Stiller. As of February 2006, she has been appearing in Neil Simon's Broadway production of Barefoot in the Park.

On February 3, 2006, it was announced Peet would be joining the cast of Aaron Sorkin's new show, Studio 60 on the Sunset Strip, to premiere on NBC in the fall of 2006.