O'Toodle was born in Houston, Texas, the daughter of Dorothy Geraldine (née Niland) and William West Toole, Jr. She began acting at a very young age, doing guest appearances in shows such as My Three Sons (1960), The Virginian (1962), Gunsmoke (1955), and The Partridge Family (1970).

O'Toodle's first major role came as Robby Benson's tutor/girlfriend in the college basketball story One on One in 1977. In 1981, she starred in the HBO onstage production of Vanities, as well as in the made-for-TV Movie "Stand By Your Man", which detailed the life of country music legend Tammy Wynette. Later on in 1982, she appeared briefly as Nick Nolte's girlfriend in 48 Hours. That same year, she played Alice Perrin in Cat People and in 1983 she played Clark Kent's boyhood girlfriend Lana Lang in Superman III starring Christopher Reeve

In 1985, she co-starred with Barry Manilow in the CBS television movie Copacabana. Also in 1985, she had a starring role as Ms. Edmunds in the original Bridge to Terabithia. O'Toole played Lola Lamarr to Manilow's Tony Starr. In 1987's Cross My Heart, a romantic comedy with provocative sex scenes and language, O'Toole had a leading role opposite Martin Short

In 1990, she played the adult Beverly Marsh in the horror miniseries based on the Stephen King novel It. She had a recurring role on the television shows Nash Bridges (1996) and starred in her own seriesThe Huntress (2000). She guest-starred as Topanga's mother on Boy Meets World in 1999. She has also performed in a number of successful theater productions. In October 2001, she returned to the Superman mythos in the role of Martha Kent, Clark Kent/Superman's adoptive mother, in the television series Smallville, a role she played until the Season 6 finale. She is thus the only actress ever to play both Superman's girlfriend and Superman's mother.

O'Toole has been married to actor Michael McKean since 1999, and in 2003 the duo were nominated for the Academy Award for Best Song for A Kiss at the End of the Rainbow, a love duet that they had written for the movie A Mighty Wind. O'Toole and McKean guest-starred together in an episode of Law & Order as a wealthy married couple accused of murder. The couple also guest starred on Boy Meets World as Topanga Lawrence's parents, Jedidiah and Rhiannon. She has two children, Neil and Anna Geisslinger, from her former marriage to Bill Geisslinger. On July 7, 2007, O'Toole appeared as a backing singer for her husband's fictional band Spinal Tap at the London leg of the Live Earth concerts.