Educated at the Francis Holland School, aged 15 she met Adam Ant. Aged 16 she left her parents home, and moved in with Ant in Notting Hill. In 1981, Donohoe appeared in the video clips for the songs "Antmusic" and "Stand and Deliver" by Adam and the Ants, when the band were at the height of their fame. Shortly before the band began their 1981 world tour, Donohoe was offered a place at the Central School of Speech and Drama. She left Ant and went off to drama college.

After graduation, she came to the attention of worldwide audiences in 1986, when she was cast opposite Oliver Reed as Lucy Irvine in Nicolas Roeg's Castaway. She followed this up with roles in two Ken Russell films The Lair of the White Worm, based on a Bram Stoker novel, and The Rainbow, based on a D.H. Lawrence novel. Another major film role for her was Liar, Liar (1997) starring Jim Carrey.

After relocating to Los Angeles, in February 1991, Donohoe took part in the first of the so-called "lesbian kiss episodes" on American television when her character C.J. Lamb on L.A. Law kissed Abbie Perkins, played by Michele Greene. Donohoe appeared in L.A. Law for two seasons. Some of her other television roles include Murder City, Bad Girls and a guest appearance in Ally McBeal.

On her return to the UK, Donohoe undertook stage work, including replacing Jerry Hall in the stage version of The Graduate. In 2009 she joined the cast of ITV soap opera Emmerdale as businesswoman Natasha Wylde, opposite her on-screen husband Maxwell Caulfield. On 25 July 2010 it was announced that Donohoe would be leaving Emmerdale, with her last screen date was 24 November 2010. On 18 and 19 February 2010, she was a guest panellist on Loose Women. She has also lent her voice to the Activision PC video game "Santa Fe Mysteries: The Elk Moon Murder" as Karen Gordon, a prime suspect and ex-wife to Elk Moon's husband, Jack.