Linney was born in New York City. Her mother, Ann Perse (née Leggett), is a nurse who worked at the Memorial Sloan-Kettering Cancer Center in New York City, and her father, Romulus Linney, is a well-known playwright and professor. Linney's paternal great-great-grandfather was Republican U.S. Congressman Romulus Zachariah Linney. 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. After attending Brown, Linney went on to study acting at the Juilliard School.

Linney appeared in minor roles in a few early 1990s films, including Dave in 1993, before coming to prominence in the public television mini-series Tales of the City. She was then cast in a series of high-profile thrillers, including Congo, Primal Fear and Absolute Power. She made her Hollywood breakthrough in 1998 when she was cast as Jim Carrey's wife in The Truman Show, for which she received much critical acclaim. 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. That same year she also appeared in the role of an artist's model in the low budget, critically praised film Maze with Rob Morrow 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 horror film The Exorcism of Emily Rose, and the comedy-drama 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". In 2006, Linney appeared in the political satire Man of the Year and also the comedy Driving Lessons (starring Rupert Grint of Harry Potter fame). In 2007, Linney appeared in the spy thriller Breach, The Nanny Diaries, opposite Scarlett Johanssonand based on the book by Emma McLaughlin and Nicola Kraus,[6] and The Savages, where Linney and Philip Seymour Hoffmanplayed siblings. She received her third Academy Award nomination for this film - this time as Best Actress.

Linney starred as 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 had 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. In 2008, Linney received excellent reviews for her portrayal of Abigail Adams, wife of the second president of the United States, in the HBO mini-series John Adams.

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 1938 movie starring Katharine Hepburn), and she was nominated for a Tony Award in 2002 as Best Actress (Play) for The Crucible, and again in 2005 for Sight Unseen. Linney also appears on the Sandra Boynton's children's CD, Philadelphia Chickens, on which she sings "Please Can I Keep It?" Columnist Liz Smith commented in the New York Post that Linney is "very hot, reputation wise", due to her Oscar nomination for The Savages. Smith indicated that Linney will appear for a theater role as La Marquise de Merteuil in a revival of Christopher Hampton's play Les Liaisons Dangereuses.