Arquette was born in Chicago, Illinois. Her father was actor Lewis Arquette, and her grandfather was comedian Cliff Arquette, who was perhaps best remembered for his "Charley Weaver" character, a fixture on the original Hollywood Squares. Arquette's mother, Mardi Olivia Nowak, was Jewish, the daughter of a Holocaust refugee from Poland, and her father, who was of French, Swiss, and mostly English descent, was a convert to Islam and a descendant of explorer Meriwether Lewis. Her siblings are actors Rosanna, Alexis, Richmond and David Arquette. Arquette is also the sister-in-law of Courteney Cox, who is married to her brother David.

At the age of eighteen she got her start in showbusiness in 1986's Pretty Smart. A year later, she gained attention for her starring role in A Nightmare on Elm Street 3: Dream Warriors, playing Kristen Parker. Soon after, her career took off, and she has since appeared in such critically acclaimed movies as True Romance, Beyond Rangoon, Ethan Frome, Lost Highway, and Flirting with Disaster.

She won a CableACE Award in 1991 for her portrayal of a deaf epileptic in Wildflower. She won an Emmy Award for Outstanding Lead Actress in 2005 for her role as the psychic Allison DuBois on NBC's Medium.

Arquette in the series Medium, for which she won an Emmy.In April 1995, Arquette married her Bringing Out the Dead-costar Nicolas Cage. They separated after nine months, but acted as a couple in public until Cage filed for divorce in February 2000. The divorce petition was withdrawn, but Arquette filed again in November 2000.

She and actor Thomas Jane became engaged in 2002 and married on June 25, 2006 at the Palazzo Contarini in Venice, Italy. They have a daughter, Harlow Olivia Calliope, born on February 20, 2003. Arquette also has a son, Enzo (b. 1989), from her previous relationship with musician Paul Rossi.