Smith was born in Baltimore, Maryland, the daughter of Anna (nee Young), an elementary school principal, and Deavere Young Smith, a coffee merchant. Smith is an alumna of the historic Western High School (Baltimore, Maryland). She then attended Beaver College (now Arcadia University), graduating in 1971. She received her M.F.A. in Acting from the American Conservatory Theater in San Francisco, California.

Smith is best known for her "documentary theatre" style in plays such as Fires in the Mirror and Twilight: Los Angeles 1992, both of which featured Smith as the sole performer of multiple and diverse characters. Fires in the Mirror dealt with the 1991 Crown Heights Riot. Twilight: Los Angeles 1992 dealt with the 1992 Los Angeles riots. Both of these plays were constructed using material solely from interviews and other pieces of the archive. House Arrest in 2000 and Let Me Down Easy in 2008 continued in this style.

Let Me Down Easy will be performed at the American Repertory Theatre beginning September 12, 2008. Smith will debut a new one-woman play, The Arizona Project, exploring "women's relationships to justice and the law," in Phoenix, AZ, in November. The play was commissioned by Bruce Ferguson, director of Future Arts Research (F.A.R.), a new artist-driven research program at Arizona State University in Phoenix.

Earlier in her career, Smith had appeared in a wide range of stage productions, including the role of Mistress Quickly in an Off Broadway production of Shakespeare's Merry Wives of Windsor with the Riverside Shakespeare Company, produced by Joseph Papp and the New York Shakespeare Festival, set in New Orleans in post Civil War America. For the role, Smith transformed herself into a "Cajun voodoo woman" - an indication of the actress's transformational power that would manifest itself in her future work.

Smith has appeared in several films, including Philadelphia and The American President, and has had recurring roles on The West Wing and The Practice.

Smith teaches in the Department of Performance Studies at the Tisch School of the Arts at New York University. From 1990 to 2000 she was a professor in the drama department at Stanford University. She also teaches at NYU School of Law.

In 2000 Smith published her first book Talk to Me: Travels in Media and Politics. In 2006 she released another Letters to a Young Artist: Straight-up Advice on Making a Life in the Arts-For Actors, Performers, Writers, and Artists of Every Kind.

As a dramatist Smith was nominated for the Pulitzer Prize for Drama in 1993 for Fires in the Mirror which won her a Drama Desk Award for Outstanding One-Person Show. She was nominated for two Tony Awards in 1994 for Twilight. One for Best Actress and another for Best Play. The play won her a Drama Desk Award for Outstanding Solo Performance and a Theatre World Award.

Smith was one of the 1996 recipients of the MacArthur Fellowship, often referred to as the "genius grant." She also won a 2006 Fletcher Foundation Fellowship for her contribution to civil rights issues as well as a 2008 Matrix Award from the New York Women in Communications, Inc.

She has received honorary degrees from Arcadia University, Bates College, Bryn Mawr College, Smith College, Skidmore College, Macalester College, Occidental College, Pratt Institute, Holy Cross College, Haverford College, Wesleyan University, School of Visual Arts, Northwestern University, Colgate University, California State University Sacramento, University of North Carolina at Chapel Hill, Wheelock College, and the Cooper Union.