Born in Sherman Oaks (a Los Angeles neighborhood), McPhee has been singing since the age of two. Her mother, Peisha Burch McPhee, a vocal coach and accomplished cabaret singer, recognized a talent for music in her daughter and started training her. Throughout high school, McPhee led an active life. She was student body vice president, a varsity swimmer, a dancer (she has said in an interview that she hopes to dance again after the Idol tour), and also a thespian, performing in many school plays along with her elder sister Adriana McPhee (born June 30, 1982). McPhee graduated in 2002 from Notre Dame High School and afterward attended The Boston Conservatory for three semesters, majoring in musical theater. She left due to her manager's suggestion that she try out for television pilots in Los Angeles. McPhee worked on a television pilot and an independent film which is slated to be released in late 2006.

While still in her late teens and early twenties, McPhee focused on an acting career. In a People interview she said that she was rejected in only "195 out of 200 auditions". In spite of the setbacks, the aspiring actress was able to snag a role as "Paramount Girl" in the musical film about the life of Hank Garland, Crazy, set to be released in 2006. Other acting endeavors included lead actress in professional productions of Annie Get Your Gun and The Ghost and Mrs. Muir. She was nominated in 2005 for the Theatre LA Ovation Award for her lead role in Annie Get Your Gun. McPhee was also part of a failed mall-based MTV soap opera entitled You Are Here, playing the older sister of a more popular younger sister.

McPhee's initial "Somewhere Over the Rainbow" performance was hailed by Simon Cowell as "the single best performance of the competition to date".McPhee was persuaded by her boyfriend, actor Nick Cokasto try out for American Idol. Cokas drove her to the San Francisco auditions, where she sang "God Bless the Child." Paula Abdul said that McPhee was beautiful, Randy Jackson hailed her audition as the best so far that season, and Simon Cowell complimented her for being "current" in terms of her appearance. Cowell also noted that McPhee was not the wannabe that he'd presumed she was after learning that her mother was a singer.

In the final cut-down show for the Top 24, McPhee was the first to be put through and, in excitement, kissed all three judges on the lips.

In the first round of the semi-finals, she sang Barbra Streisand's version of Buddy Johnson's "Since I Fell for You," again earning high praises. Cowell said that out of the four "very, very good vocalists" of the night, she was the best.

During the week leading to the third round of the semi-finals, when McPhee sang Aretha Franklin's "Think," she was rumored to be quitting due to pregnancy. However, during the performance show on March 7, 2006, she denied this accusation, attributing it to a poor choice of clothing. Host Ryan Seacrest, with tongue-in-cheek, later asked about her and fellow Idol contestant Kevin Covais; McPhee playfully denied any relationship.

During the week preceding the top three show, McPhee visited her former high school for her hometown celebration. During the top three performance night, McPhee sang a song chosen by Simon Cowell, "Over the Rainbow." Cowell pegged it as "the single best performance of the competition to date." Elliott Yamin was eliminated the following night, and McPhee advanced to the May 24, 2006 finale along with Taylor Hicks, in which Hicks won the competition.

McPhee's run on American Idol led to the popular use of the term "McPheever," coined by Ralph Garman of Los Angeles radio station KROQ's morning show Kevin and Bean. Other terms used include "McPhan" (McFans are also the name for McFly fans), "McPhaith" and "Kat Pack."

McPhee was also congratulated by Congressman Brad Sherman of Sherman Oaks, the 27th district of California, who raised a flag in her honor at the United States Capitol on the day of the finale show.

After coming second to Taylor Hicks, McPhee was quoted in news publications as having said, "I don't need sad faces or anyone to feel bad for me. I have got a record deal, pretty much. It wasn't about winning the title, I just wanted to give the best performance I could," regarding her runner-up status.

McPhee's debut single, "Somewhere Over the Rainbow/My Destiny" was released on June 27, 2006 by RCA Records. It was a record breaker, reaching 12th position on Billboard's Hot 100, the highest point of the 70-year-old song.

McPhee toured with Italian tenor Andrea Bocelli, performing in three of his concerts during his tour in the United States from June 9 through June 11, 2006, less than a month after the finale. The duo performed "The Prayer" (which McPhee sang with Bocelli during Idol's Love Song Week) and "Somos Novios"/"It's Impossible". She and Bocelli later appeared on JC Penney's Concert for Kids.

On June 6 2006, it was announced that McPhee had signed to series creator Simon Fuller's 19 Recordings Limited and BMG's RCA Records. It was also announced at that time that her first single would be a double A-side, reflecting the fact that, a la Judy Garland, "Somewhere Over the Rainbow" had became her signature song.

You start doing something you love doing and the weight just started falling off me. I was still eating... It was a really amazing thing that happened with me and my body has just been kind of falling to its natural state and I don't know if it's finished going where it wants, but it's doing its thing.

In June 2006, McPhee revealed to "People" magazine that she previously suffered from bulimia. After a period of about five years, she began treatment after qualifying for American Idol. During her run on American Idol, she lost 30 lbs.

McPhee missed the start of the American Idols LIVE! Tour 2006, due to severe bronchitis and laryngitis. She was due to return July 27, 2006 in Pittsburgh, Pennsylvania, ending her three-week hiatus. McPhee commented on her illness in a public interview, and was quoted as, "I just have to sing easily so I can get through the tour... I bruised [my vocal cords] because I was doing so much coughing". McPhee was scheduled to join the tour on July 27 in Pittsburgh, but her flight from New York City was delayed and then cancelled due to inclement weather, so she ended up joining the tour the following day, July 28, in Washington, D.C.

Katharine McPhee in Duluth, Georgia, at the American Idol Tour's fan meet-and-greet.McPhee's debut album will be released November 14, 2006, along with Taylor Hicks' and Kellie Pickler's albums.

McPhee is co-producing Michael Albanese's play Red Herring with boyfriend Nick Cokas, Robert Hawk, Angelina Bruno, and Jeff Kasal. McPhee described her desire to become involved, stating that although "audiences know me best from 'American Idol'... my passion has always been theatre." The play will be a part of the 10th Annual New York International Fringe Festival.

On August 1, 2006, McPhee suffered a hair-line fracture in her left foot after tripping backstage at an American Idol Tour stop in Charlotte, North Carolina. McPhee will continue to perform on the American Idols Live Tour, despite the injury.