Birch was born in Los Angeles, California, the eldest child of Jack Birch and Carol Connors, both were former adult film actors. Connors appeared in the seminal pornographic film Deep Throat her parents now work as her managers. Birch, who has a brother named Bolt Birch, is of Jewish, Nordic, and Italian descent; the family's original surname was "Biersch", coming from her German Jewish ancestors. Her given name is a feminized form of the name Thor, the God of the Sky and of Thunder in Norse mythology.

From an early age, Birch was encouraged by her parents to audition for commercials. She landed several parts representing companies such as Quaker Oats and Vlasic Pickles. However, it wasn't until 1988 that her acting career really began. She was cast as Molly in the short-lived television series Day By Day, where she was billed simply as "Thora." That same year she played an important role in the movie Purple People Eater opposite Ned Beatty and Neil Patrick Harris for which she won a Youth In Film Award for her performance.

Thora was cast in her first, real break-though role in 1991 when she played Billie Pike in the movie Paradise which also starred Don Johnson, Melanie Griffith and Elijah Wood. She was able to get this role by beating out over 4,000 young hopefuls who auditioned for it. Her ability to portray herself as a young tomboy landed her many parts in movies including Hocus Pocus and the big-budget films Patriot Games in 1992 and its sequel, Clear and Present Danger in 1994. In 1995, Thora was cast in the movie Now and Then which is regarded as Thora's first venture into teenage roles. In the mid 90s she also made guest-starring appearances on various television shows such as "The Outer Limits", "Promised Land" and "Touched By An Angel".

She took break from acting but returned in 1999 with the made-for-TV movie Night Ride Home. She also was initially casted for the role of Tammy Metzler in the dark-comedy Election, but ended up leaving after only the third day of filming after disagreements with director/writer Alexander Payne. That same year, she won critical praise by playing Jane Burnham in American Beauty, in which Birch was nominated for a British Academy of Film and Television Arts award, while the movie eventually won the Academy Award for Best Picture. Some consider it to be her first adult role; she was only 16, and thus a minor in the United States, when the movie was made, therefore her parents had to approve Birch's brief topless scene in the movie. Her parents and child labor representatives were on the set for the shooting of the scene in which she removes her bra and bares her breasts to her boyfriend in the movie, Ricky Fitts, played by actor Wes Bentley.

It was her lead role in Ghost World which won her great critical praise, alongside Scarlett Johansson, Steve Buscemi and Brad Renfro. That year, she was nominated for a Golden Globe for best actress.

Birch had indicated that she has aspirations of one day becoming a director. Recently she began directing short video sketches for the sketch comedy troupe The Doomed Planet and her official website promotes a url where such a video can be freely downloaded.

She currently lives in her own home in southern California.