Linney was born in New York City. Her father, Romulus Linney, is a well-known playwright and her mother, Ann Leggett Perse, is a nurse who worked at the Memorial Sloan-Kettering Cancer Center in New York City; she has a half-sister, Susan, from her father's second marriage.

Linney graduated from the Northfield Mount Hermon School in 1982. She then attended Northwestern University before transferring to Brown University, where she graduated with a Bachelor of Arts in 1986. She also trained at the Juilliard School and at the Moscow Art Theatre.

Linney appeared in minor roles in a few early 1990s films, before being cast in a series of high-profile thrillers, including Congo, Primal Fear and Absolute Power. In 2000, she was nominated for an Academy Award for Best Actress for her role in the lower-budget film You Can Count on Me. In 2003, Linney appeared in several notable films, including Mystic River, Love Actually and The Life of David Gale. Her 2004 performance in Kinsey, as the title character's wife, was nominated for the Academy Award for Best Supporting Actress.

In 2005, Linney starred in The Exorcism of Emily Rose (a horror movie and courtroom drama), and the very well-reviewed comedy, The Squid and the Whale, for which she received a Golden Globe nomination for "Best Performance by an Actress in a Motion Picture - Musical or Comedy".

Linney's upcoming films will include the political satire Man of the Year, the spy thriller Breach, The Nanny Diaries, opposite Scarlett Johansson and based on the book by Emma McLaughlin and Nicola Kraus, and the Savages, where Linney and Philip Seymour Hoffman will play siblings.

Her important television roles include "Mary Ann Singleton" in the television adaptations of Armistead Maupin's Tales of the City books (1993, 1998, and 2001). She won her first Emmy Award in 2002 for "Outstanding Lead Actress in a Miniseries or a Movie" for Wild Iris. In 2004, she won her second Emmy Award as "Outstanding Guest Actress in a Comedy Series", for her recurring role as the final love interest of Frasier Crane in the television series Frasier.

Her extensive stage credits on Broadway and elsewhere include Hedda Gabler (for which she won a 1994 Joe A. Callaway Award), Holiday (based on the movie starring Katharine Hepburn), and The Crucible. She was nominated for a Tony Award in 2002 as Best Actress (Play) for 'The Crucible', and again in 2005 for Sight Unseen.

Linney was married to David Adkins, whom she met at Juilliard, from 1995 to 2000.