Monaghan was born in Winthrop, Iowa, the daughter of Sharon (née Harnel), who ran a day care center in the family's home for forty years, and Robert Monaghan, a factory worker. She has two older brothers, Bob and John. Her parents brought up twelve foster children over a period of twelve years. Monaghan has Irish and German ancestry, and was raised Catholic.
She graduated from East Buchanan High School in 1994, where she was class president and acted in several plays. After graduation, she moved to Chicago to study journalism at Columbia College Chicago and began to model. She modeled in Milan, Singapore, Tokyo and Hong Kong, as well as in the United States. With one semester remaining to complete her journalism degree in 1999, she left for New York to pursue an acting career, where she appeared as a model in several magazines and catalogs before making her acting debut.
Monaghan's first two credited television appearances, in a supporting role, were as "Caroline Busse" in episodes of Young Americans, which aired in 2000. She also performed on Law & Order: Special Victims Unit in "Consent", an episode that was broadcast on January 19, 2001; and she made her "big screen" debut that same year in the film Perfume, playing the part of "Henrietta". Her next film, again in a supporting role, was in 2002 in Unfaithful, starring Richard Gere and Diane Lane.
Monaghan got a big-break role in 2002 when she co-starred in the television series Boston Public playing the role of Kimberly Woods. After guest-starring for a season, she returned to film, appearing in It Runs in the Family in 2003, Winter Solstice in 2004, and starring with Robert Downey Jr. and Val Kilmer in Kiss Kiss Bang Bang in 2005. She also appears in Constantine in 2005, but her role in that film was essentially cut, with her scenes viewable on the DVD under "deleted scenes."
In 2007, she co-starred with Ben Stiller in The Heartbreak Kid, and with Casey Affleck in Gone Baby Gone. In 2008, she co-starred with Patrick Dempsey in Made of Honor, and co-starred with Shia LaBeouf in Eagle Eye. She starred alongside Jake Gyllenhaal in Source Code. She played Diane Ford in Trucker.
Monaghan starred in the critically acclaimed HBO anthology series True Detective.
In April 2016, Monaghan was reported to have joined the principal cast of Shawn Christensen's independent feature film Sidney Hall, which began filming later that month. Nine months later, on January 25, 2017, the film premiered at the Sundance Film Festival.
Monaghan met Australian graphic artist Peter White at a party in 2000. They married in Sydney five years later in August 2005 and live in New York. She gave birth to their daughter in 2008, and their son on October 30, 2013.
In 2011, Monaghan had a mole on the back of her calf, which she had examined, then removed. It was diagnosed as skin cancer.
The following are awards for which Monaghan was nominated, or won.