Babbit was born in Shaker Heights, Ohio. She grew up in Cleveland with her father, a lawyer and law school professor, and her mother who ran a treatment program for teenagers with drug and alcohol problems, before her death in 2006. The program was called New Directions, and it provided inspiration for the fictional "reparative therapy" (conversion therapy) camp "True Directions" in But I'm a Cheerleader. Babbit began acting at the Cleveland Play House at the age of seven, later moving into stage management and lighting. She studied West African Studies at Barnard College (graduating in 1993) and began taking film classes at New York University during her summer vacations.
After graduating from Barnard College in 1993, Babbit's first job was as an assistant to the assistant for Martin Scorsese on The Age of Innocence. After that she worked as an intern on John Sayles's The Secret of Roan Inish where she worked with fellow aspiring filmmakers Karyn Kusama and Jasmine Kosovic.
Babbit's next job was as script supervisor on John Duigan's film The Journey of August King-a job for which she had little experience, that she said she "lied her way into". This was followed by Su Friedrich's television film Hide and Seek. In 1996, after working on If These Walls Could Talk, where she met her future partner Andrea Sperling, Babbit got a job as script supervisor on David Fincher's film The Game. This proved to be influential to her career as a director.
In 1996, Babbit, with Ari Gold, directed Frog Crossing, a comedic short film about an animal rights activist who protects frogs as they hop across a highway. She followed this with 1999 comedy short Sleeping Beauties. While working on The Game, she discussed her idea for a short film based on a fairy tale with Fincher. He gave Babbit about 6,000 feet of 35 mm film. His editor gave her free use of an Avid editing machine. The star of The Game, Michael Douglas, wrote to Paramount and asked them to let Babbit access their costume department. As a result, she was able to make Sleeping Beauties for about $10,000. Based on the classic fairy tale Sleeping Beauty, the film is about a young woman (Sarah Lassez) who works as a makeup artist at a funeral home. Obsessed with an unavailable ex-girlfriend, she eventually meets and falls in love with a photographer's assistant (Clea DuVall). The short premiered at Sundance in 1995. Her other short film Stuck premiered at Sundance in 2002 and won a jury prize.
In 1999, Babbit directed her first feature film, But I'm a Cheerleader. Starring Natasha Lyonne and Clea DuVall, it is a romantic comedy about a high school cheerleader who is sent to a so-called "reparative therapy" camp when her parents suspect she is a lesbian. The film was inspired by an article that Babbit read about a man who had been sent to a similar camp. The camp in the film was partly based on a halfway house for young people with drug and alcohol problems run by her mother. Babbit appeared in This Film Is Not Yet Rated discussing this film and her struggle against an NC-17 rating. In 2000, the film won the Audience Award and the Graine de Cinéphage Award at the Créteil International Women's Film Festival, an annual French festival which showcases the work of female directors. Film scholar Wheeler Winston Dixon described the film as a commercial and critical success which became a cult film on DVD in later years.
Babbit's second film was 2005 thriller film The Quiet. Starring Elisha Cuthbert and Camilla Belle, the plot revolves around a deaf girl who, when sent to live with her godparents, discovers some dark secrets about the family. It was released by Sony Screen Gems worldwide.
Babbit's next film, comedy Itty Bitty Titty Committee was released in 2007. Produced by POWER UP, it starred Melonie Diaz as a young woman who becomes involved with a radical feminist group. It received mostly negative reviews but was nominated for a Teddy Award at the Berlin International Film Festival and won a jury award at South by Southwest in 2007.
In 2011 Babbit began production on Breaking the Girls, a thriller film written by Mark Distefano and Guinevere Turner.
Babbit has directed and produced episodes of several television programs including Popular, United States of Tara, The Bernie Mac Show, Malcolm in the Middle, Nip/Tuck, Gilmore Girls, Castle, Alias, Ugly Betty, Dirty Sexy Money, Drop Dead Diva, Looking, Girls, and The L Word. She enjoys working in television because it helps her to "keep her skills up". She has said that because television directors have less overall responsibility than film directors, she is able to concentrate on working with actors. Television work also enables her to earn money while pursuing her long-term goals of making feature films.
Babbit is openly lesbian. She lives in Los Angeles with her wife, Karey Dornetto. She has two daughters, Finley and Ryder, with her former partner, producer Andrea Sperling.1996: Frog Crossing (short)
1999: Sleeping Beauties (short)
1999: But I'm a Cheerleader
2001: Stuck (short)
2004: A Memoir to My Former Self (short)
2005: The Quiet
2007: Itty Bitty Titty Committee
2012: Made in Cleveland (segment "Fucking Cleveland")
2012: Breaking the Girls
2015: Addicted to Fresno
1999–2001: Popular (8 episodes) (Producer – Season Finale)
2001: Maybe It's Me (4 episodes)
2001: The Bernie Mac Show (2 episodes)
2001–2007: Gilmore Girls (18 episodes)
2002–2003: Malcolm in the Middle (3 episodes)
2003: Miss Match
2003–2004 Nip/Tuck (3 episodes)
2006: Ugly Betty
2007–2008: The L Word (3 episodes)
2007: The Riches (2 episodes – Season Finale)
2007: Gossip Girl
2007–2008: Dirty Sexy Money (3 episodes)
2007: Notes from the Underbelly (2 episodes)
2008: Swingtown (2 episodes)
2009: 90210 (2 episodes)
2009–2010: Drop Dead Diva (6 episodes)
2010: The Middle (3 episodes)
2010: United States of Tara (4 episodes)
2011: Mr. Sunshine (1 episode)
2012: Revenge (1 episode)
2014: Girls (2 episodes)
2014: Married (2 episodes)
2014 - 2015: Looking (2 episodes)
2015: The Grinder (1 episode: "Giving Thanks, Getting Justice")
2016: Supergirl (1 episode: "Childish Things")
2016: Silicon Valley (2 episodes)
2017: "Its Always Sunny in Philadelphia" (3 episodes)