MacGraw was born in Pound Ridge, New York, the daughter of commercial artists Frances (née Klein; 1901–1980) and Richard MacGraw. She has one brother, Dick, an artist. Her father was of Scottish descent, while her maternal grandparents were from Budapest, Hungary, of Jewish heritage. MacGraw's mother chose not to disclose her true ethnicity to her father, instead professing ignorance about it. "I think Daddy was bigoted," MacGraw has said.
Her mother was considered a "pioneer" as an artist, who had taught school in Paris before settling in Greenwich Village. Her parents married when her mother was 40: "My gorgeous father: a combination of Tyrone Power and a mystery, a brilliant artist and a brain beyond brains." He was born in New Jersey with his childhood spent in an orphanage. He ran away to sea when he was 16 and studied art in Munich. MacGraw adds, "Daddy was frightened and really, really angry. He never forgave his real parents for giving him up." As an adult, he constantly suppressed the rage he built up against his parents. She described her father as "violent".
MacGraw attended Rosemary Hall in Wallingford, Connecticut and Wellesley College in Wellesley, Massachusetts.
Beginning in 1960, MacGraw spent six years working at Harper's Bazaar magazine as a photographic assistant to fashion maven Diana Vreeland. She worked at Vogue magazine as a fashion model, and as a photographer's stylist. She has also worked as an interior decorator.
MacGraw started her acting career in television commercials, including one for the Polaroid Swinger camera. MacGraw gained critical notice in the 1969 film Goodbye, Columbus, but real stardom came in 1970 when she starred opposite Ryan O'Neal in Love Story, one of the highest-grossing films in U.S. history. MacGraw was nominated for the Academy Award for Best Actress for that performance. Following Love Story, MacGraw was celebrated on the cover of Time magazine.
In 1972, after appearing in just three films, she had her footprints and autograph engraved at Grauman's Chinese Theatre. She then starred opposite Steve McQueen in The Getaway (1972), which was one of the year's top ten films at the box office. Having taken a five-year break from acting, in 1978 MacGraw re-emerged in another box office hit, Convoy (1978), opposite Kris Kristofferson. She then appeared in the films Players (1979) and Just Tell Me What You Want (1980), directed by Sidney Lumet.
In 1983, MacGraw starred in the highly successful television miniseries The Winds of War. In 1984, MacGraw joined hit ABC prime-time soap opera Dynasty as Lady Ashley Mitchell, which, she admitted in a 2011 interview, she did for the money. She appeared in 14 episodes of the show before her character was killed off in the infamous "Moldavian wedding massacre" cliffhanger episode in 1985.
MacGraw made her Broadway theatre debut in New York City in 2006 as a dysfunctional matriarch in the drama Festen (The Celebration).
In 2016, MacGraw reunited with Love Story co-star Ryan O'Neal in a staging of A.R. Gurney's play Love Letters.
In 1991, People magazine selected MacGraw as one of its "50 Most Beautiful People" in the World.
In 2008 GQ magazine listed her in their "Sexiest 25 Women in Film Ever" edition.
Having become a Hatha yoga devotee in her early 50s, MacGraw produced a yoga video with the American Yoga Master Erich Schiffmann, Ali MacGraw Yoga Mind and Body. This video was a bestseller upon release and still popular more than a decade later. The video's impact was such that in June 2007 Vanity Fair magazine credited MacGraw with being one of the people responsible for the practice's recent popularity in the United States.
In July 2006, MacGraw filmed a public service announcement for People for the Ethical Treatment of Animals (PETA), urging residents to take their pets with them in the event of wildfires. In 2008, she wrote the foreword to the book Pawprints of Katrina by author Cathy Scott and photography by Clay Myers about Best Friends Animal Society and the largest pet rescue in U.S. history. An animal rights advocate throughout her life, she received the Humane Education Award by Animal Protection of New Mexico for speaking out about animal issues.
MacGraw has acknowledged having had an abortion in her early twenties, at a time when the procedure was illegal. After college, she married Robin Hoen, a Harvard-educated banker, but they divorced after a year and a half.
On October 24, 1969, MacGraw married film producer Robert Evans; their son, Josh Evans, is an actor, director, producer and screenwriter. They divorced in 1972 after she became involved with Steve McQueen on the set of The Getaway. She married McQueen on August 31, 1973, in Cheyenne, Wyoming, and divorced him in 1978.
MacGraw's autobiography, Moving Pictures revealed her struggles with alcohol and sex addiction. She was treated for the former at the Betty Ford Center.
When former husband Evans received his star on the Hollywood Walk of Fame in 2002, she accompanied him. Their grandson Jackson was born in December 2010 to Josh and his wife, singer Roxy Saint.
Since 1994 she has lived in Tesuque, New Mexico, after "fleeing Malibu" when a house she was renting burned down.Made two appearances on The Oprah Winfrey Show, once in 1990, then in the farewell season in 2011.