Smith was born in New York City. Her father, Eugene "Gene" Smith, worked as a publisher, and her mother, publicist Lois Eileen Smith (née Wollenweber), had worked with Robert Redford and other actors and directors.
Smith has appeared in numerous films, including The Moderns (1988), The Silence of the Lambs (1991), The Night We Never Met (1993), Mr. Wonderful (1993), Vanya on 42nd Street (1994), Last Summer in the Hamptons (1995), Trees Lounge (1996), Kansas City (1996), The Broken Giant (1998), Random Hearts (1999), Series 7: The Contenders (2001), Bad Company (2002), Melinda and Melinda (2004), Iron Jawed Angels (2004), Shooting Vegetarians (2005), In Her Shoes (2005), The Namesake (2006), and Interstellar (2014).
She appeared as a guest star on the sixth season of Crossing Jordan as Dr. Kate Switzer, as one of Claire Fisher's art teachers on Six Feet Under, and on Weeds as the ex-wife of Peter Scottson, the late husband of main character Nancy Botwin.
Smith originated the role of Andrea in the pilot of the ABC drama series Dirty Sexy Money, but was replaced by Sheryl Lee after becoming a series regular on Grey's Anatomy. On November 3, 2008, Smith told Entertainment Weekly that her character was being written out of Grey's Anatomy, stating that she was "really, really shocked," and suggested that network executives' discomfort with her character's lesbian relationship might be the reason for her ousting. However, Shonda Rhimes, the show's creator, said that Smith was dismissed from the series because the writers did not find that the "magic and chemistry" that Smith's character had with Sara Ramirez's character, Callie Torres, would sustain in the long run.
Smith has also had roles on Homicide: Life on the Street, Law & Order: Special Victims Unit, Law & Order: Criminal Intent, Law & Order, Criminal Minds and The Hunger. In 2012, Smith also appeared in an episode of the second season of the FX TV series American Horror Story. In 2015, she appeared as Frances Simpson on the Showtime drama series Ray Donovan;
As of spring 2017, Smith is appearing in the recurring role of Sheriff Jane Greene in the fifth and final season of A&E's scripted thriller series Bates Motel, opposite series stars Vera Farmiga--already-dead Norma Bates--who is a figment of the imagination of her mentally ill and murderous son Norman (Freddie Highmore). Bates Motel is a prequel series homage to director Alfred Hitchcock's 1960 horror classic Psycho, which starred Tony Perkins and Janet Leigh.
Smith married Russian cinematographer Steve Lubensky on January 6, 1999. They welcomed a daughter, Fanny Grace Lubensky, on March 12, 2003 in New York City. In May 2008, the couple adopted a baby girl, Lucy Dinknesh Lubensky, from Ethiopia. The family lives in New York's Upper West Side, and in Beachwood Canyon, Los Angeles.
On August 27, 2008, Smith spoke at an "Open the Debates" rally in Denver, Colorado, opposing the Commission on Presidential Debates exclusion of third party candidates from the nationally televised Presidential debates, and in support of Independent Presidential Candidate Ralph Nader.