Taylor, second youngest of six children, was born in Glencoe, Illinois, a suburb of Chicago, Illinois, the daughter of Marie, a professional babysitter, and Park Taylor, a folk artist and hardware store operator. She grew up in a "warm family environment" and has described herself as being a "tomboy" and "a bit of a searcher" during her childhood. Taylor graduated from New Trier High School in Winnetka, Illinois, 1985. Thereafter, she attended the Theatre School of Drama at DePaul University and the Piven Theatre Workshop.

Taylor has been dating author Nick Flynn since 2004. The couple have a daughter. She was previously engaged to Michael Imperioli and previously linked to John Cusack, Eric Stoltz, Matthew Broderick and Michael Rapaport.

Taylor has appeared in dozens of films since 1988, including Dogfight, Mystic Pizza, and Rudy. Her work has mostly been in independent films and theater. She played the role of Lisa Kimmel Fisher (mostly in the second and third seasons) in the HBO drama Six Feet Under.

In early 2004, Taylor began appearing onstage in New York City in a production of Wallace Shawn's Aunt Dan and Lemon in the role of Lemon. She won the Best Actress award at the 2005 Copenhagen International Film Festival for her role in Factotum. In 2006, Taylor worked again with Mary Harron in The Notorious Bettie Page.

Taylor currently stars in Lifetime's hour-long comedy/drama State of Mind. In the show Taylor stars as a therapist in New Haven dealing with a divorce and a parade of quirky clients. Taylor plays the daughter of Frank Langella's character in Andrew Wagner's Starting Out in the Evening, a drama released on November 23, 2007.