Headey was born in Bermuda, where her father, an English police officer, was sent as an advisor. The family returned to Huddersfield, West Yorkshire, when she was eight years old. She had her first taste of acting as a pupil at Shelley College and had her first big break at the age of 17 when she was spotted performing in a school production at the Royal National Theatre being picked for a role opposite Grant Warnock in the 1992 film Waterland.

Headey has appeared in such films as James Ivory's Academy Award-nominated The Remains of the Day (alongside Anthony Hopkins and Emma Thompson), Stephen Sommers' The Jungle Book, Mrs Dalloway, Gossip, Aberdeen, The Parole Officer, Possession and Ripley's Game.

Headey co-starred with Matt Damon and Heath Ledger in Terry Gilliam's The Brothers Grimm, and played Queen Gorgo in Zack Snyder's 300, based on Frank Miller's graphic novel. She also appeared in two films with Piper Perabo: The Cave and Imagine Me & You. Recent roles include the German film The Red Baron, a biopic of the legendary World War I fighter pilot Manfred von Richthofen, where she appeared alongside Matthias Schweighöfer and Joseph Fiennes. She also appeared as stuffy Miss Dickinson in the 2007 release of the St. Trinian's series (for which she received third billing for a relatively minor role). She also has a small role in the horror movie Laid to Rest, which will be released on DVD on 21 April 2009. She starred in the Ridley Scott produced Tell-Tale, a film based on the short story "The Tell-Tale Heart" by Edgar Allan Poe.

In addition to her film work, Headey headlined Fox's Terminator: The Sarah Connor Chronicles, a television spin-off from James Cameron's popular Terminator franchise. Headey played Sarah Connor from January 2008 to April 2009. The show ran two seasons consisting of 31 episodes until its cancellation in May 2009.

Over the past couple of years, during downtime on the Terminator set, the actress worked on her own project which she describes as a "quirky ensemble comedy." Headey wrote and directed a short to promote the project, which features Piper Perabo and John Cleese. She now hopes to direct and produce a feature length version.

It has been confirmed by the Chicago Tribune that Headey will play Cersei Lannister in the upcoming HBO series Game of Thrones, based on the first book of the series A Song of Ice and Fire by George R.R. Martin.

Headey dated actor Jason Flemyng for nine years. She and Flemyng met during the filming of The Jungle Book. She is close friends with actress Piper Perabo. Since 2007, she has been married to musician Peter Paul Loughran, with whom she has given birth to her son. She currently lives in California. Her height is 5 feet, 5 and 1/2 inches.