She was born Betty Thomas Nienhauser in St. Louis, Missouri. She graduated from Ohio University (in Athens, Ohio) with a Bachelor of Fine Arts degree. She worked as an artist and taught school in Chicago before deciding to pursue a career in show business.

Thomas joined The Second City comedy group and appeared in the films Tunnel Vision (1975), Chesty Anderson, USN (1976), Used Cars (1980) and Loose Shoes (1980) and on the TV series The Fun Factory (1976).

While Thomas had been building her career in comedy, her breakthrough role as an actress came when she was cast in the dramatic role of police officer Lucille Bates on the TV series Hill Street Blues (1981-1987). She was nominated for six Emmy Awards for this role and won one for Best Supporting Actress in 1985.

Following the end of the series, Thomas moved into directing. She first worked in TV, directing episodes of series such as Doogie Howser, M.D., Dream On, Hooperman, Mancuso, FBI, Midnight Caller, On the Air, Parenthood, Shannon's Deal and Sons and Daughters, and TV movies such as Couples (1994), My Breast (1994), and The Late Shift (1996). She won Emmys for her direction of Dream On in 1990 and My Breast in 1994.

Thomas made her feature film directorial debut in 1992 with Only You. She went on to direct several films, including The Brady Bunch Movie (1995), Private Parts (1997), Dr. Dolittle (1998), 28 Days (2000), and I Spy (2002). She has also produced several films, including Can't Hardly Wait (1998), Charlie's Angels (2000), and Surviving Christmas (2004).