Scarwid left Georgia at the age of 17 and headed to New York to become an actress. She graduated from Pace University and The American Academy of Dramatic Arts simultaneously and completed the dual program as an honor student. Scarwid was active with the University of Georgia Theater Workshop, the National Shakespeare Conservatory, and the Film Actor's Workshop at Burbank Studios.

Scarwid's first film appearance was in Louis Malle's Pretty Baby (1978). She was nominated for an Academy Award for Best Supporting Actress for her role as John Savage's girlfriend in Inside Moves (1980).

Scarwid is perhaps most recognized for the role that followed, the role of Christina Crawford, the much abused adopted daughter of Hollywood legend Joan Crawford in the (1981) film Mommie Dearest. The film, originally conceived as a dramatic piece, was derided as being over-the-top, then eventually assumed a second life as a camp classic. Scarwid was generally well reviewed for portraying the voice of reason in the film, although several critics noted that her Southern accent surfaced in several scenes (). Like costar Faye Dunaway, Scarwid's appearance in the film typecast her. With isolated exceptions like Silkwood (1983) (in which she earned critical reviews as Cher's girlfriend), Scarwid was largely confined to lesser work in "B" films like Psycho III (1986) and Brenda Starr (1993).

In recent years, Scarwid has garnered more high-profile film roles. She had a brief but scene-stealing part as Jody, the slightly ditzy friend of Michelle Pfeiffer's character in the (2000) film What Lies Beneath. In (2003), she appeared in Party Monster as controversial New York City club promoter Michael Alig's mother, Elke Alig.

Scarwid portrayed Rose Kennedy in the made-for-TV JFK: The Restless Years (1993), and Bess Truman in the HBO film Truman (1995), playing opposite Gary Sinise, for which she earned an Emmy nomination.

In 2006, she appeared as "Jeanette Owens" in the second season of the series Prison Break. Scarwid appeared in the fifth and sixt episodes of the season. She has also been featured as Isabel in the third season of Lost, as the figurative "sheriff" of The Others in the episode Stranger in a Strange Land.

In 2004, she landed a contract role in the acclaimed Fox television series Wonderfalls. Scarwid received acclaim for her portrayal of family matriarch Karen Tyler (). However, the show was cancelled after only a few airings; a DVD has been released of the full 13-episode season.

Scarwid has been married to Eric Sheinbart, a physician, since 1977. The couple have two children, Jeremy and Ursula.