Margaret Sullavan was born on May 16, 1909, in Norfolk, Virginia, to a wealthy stockbroker, Cornelius Sullavan, and his wife, Garland Councill Sullavan. She had a younger brother, Cornelius, and a half-sister, Louise "Weedie" Gregory. As a child, Margaret suffered from a painful muscular weakness in her legs that prevented her from walking until the age of six.

After her recovery, she emerged as an adventurous and tomboyish child who preferred playing with children from a poorer neighborhood, much to the disapproval of her class-conscious parents.

Her first dance performances were at Sunday school at St. Andrew's Episcopal Church. She attended boarding school at Chatham Episcopal Institute (now Chatham Hall), in Chatham, Virginia, where she was president of the student body and delivered the salutatory oration in 1927.

Margaret Sullavan moved to Boston and lived with her half-sister, Weedie, while she studied dance at the Boston Denishawn studio and (against her parents' wishes) drama at the Copley Theatre. When her parents cut her allowance to a minimum, she defiantly paid her way by working as a clerk in the Harvard Cooperative Bookstore (The Coop), located in Harvard Square, Cambridge.

Margaret Sullavan began her career onstage in 1929 with the University Players on Cape Cod, Massachusetts. In 1933, she caught the attention of film director John M. Stahl and made her screen debut that same year in Only Yesterday.

She continued to be successful on stage and film, best known for The Shop Around the Corner. Sullavan preferred working on the stage and made only 16 films, four of which were opposite close friend James Stewart in a popular partnership that included The Mortal Storm and The Shop Around the Corner.

Stewart and Margaret Sullavan were also close friends of Henry Fonda, to whom Sullavan was married from 1931 to 1933. She was nominated for an Academy Award for Best Actress for her performance in Three Comrades (1938).

In the early 1940s, she retired from the screen to devote herself to her children and stage work. She returned to the screen in 1950 to make her last film, No Sad Songs for Me, in which she played a woman dying of cancer.

For the rest of her career, she appeared only on the stage. Popular stage portrayals included Terry Randall in Stage Door, Sally Middleton in The Voice of the Turtle and Sabrina Fairchild in Sabrina Fair.

Her personal life was marked by several marriages and a complex family dynamic. She was married to actor Henry Fonda from 1931 to 1933, director William Wyler from 1934 to 1936, and agent Leland Hayward from 1936 to 1948.

Her final marriage was to Kenneth Wagg in 1950, which lasted until her death. She had three children: Brooke Hayward, Bridget Hayward, and William Hayward. Her family life was tumultuous, with her children experiencing mental health issues and estrangement from her.

Her youngest daughter, Bridget, tragically died by suicide in 1960, only 10 months after her mother's death.

She was known for her dramatic roles, although she also excelled in comedic performances. Her collaborations with director Frank Borzage and actor James Stewart were particularly successful.

Margaret Sullavan passed away on January 1, 1960, in New Haven, Connecticut, from an accidental overdose of barbiturates. She was 50 years old. Her death was ruled accidental by the county coroner. She is buried at Saint Mary's Whitechapel Episcopal Churchyard.