Falco was born in Brooklyn, New York to Frank Falco (an Italian commercial artist, who now works as a sculptor) and Judith Anderson (a Swedish actress who has since retired from the profession); her siblings are Joseph, Paul, and Ruth. She was raised in Northport, on Long Island, graduating from Northport High School in 1981 after playing Eliza Doolittle in a production of My Fair Lady. She attended SUNY Purchase with fellow actors Stanley Tucci and Ving Rhames, with whom she remains close friends.

Falco is the only actress to have received a Golden Globe, an Emmy, and a SAG Award in the same year, for her performance as Carmela Soprano in the television series The Sopranos. Prior to that, she was a regular performer on Oz. She has also had recurring roles on Law & Order and Homicide: Life on the Street.

In the 2004 presidential election, Falco emerged on the political scene as a spokeswoman for M.O.B. (Mothers Opposing Bush). She endorsed Democratic presidential nominee John Kerry. She is a survivor of breast cancer. In December 2004 she adopted a son, named Anderson Falco ("Anderson" is her mother's maiden name).

Falco has won three Emmys, two Golden Globes and three Screen Actors Guild Awards.

She appeared in the films Cop Land, Random Hearts and John Sayles' Sunshine State, for which she received the Los Angeles Film Critics Award for Best Supporting Actress.