Sheridan was born Dinah Nadyejda Ginsburg in Hampstead Garden Suburb to Charlotte Lisa (née Everth; 1893–1966) and James Ginsburg (1893–1958).

Having made television history by appearing in the first major TV play and being the first actor interviewee in the 1930s, Dinah worked extensively in the medium later in her career. Roles included guest appearances in popular series of the time including Armchair Theatre (1969), Seasons Of The Year (1971), Zodiac, Crown Court and Marked Personal (all during 1974), Village Hall (1975); Sykes (1979), and The Swish of the Curtain (1980).

In 1932, at the age of 11, she debuted professionally in Where the Rainbow Ends at the Holborn Empire. She changed her name to Dinah Sheridan, which she selected from a phone book, to play Wendy, at the age of 14, in a long-running theatrical production of Peter Pan starring Jean Forbes-Robertson. Dinah became the first Actress to play both Peter Pan and Wendy, touring between 1934–36 and taking the show to Stratford-upon-Avon. Her parents changed their surname to Sheridan at the same time. Her first feature film was Give My Heart (1935). Other early films included Father Steps Out (1937) and her first starring role the following year in Irish and Proud of It. Stage appearances included Terence Rattigan's French Without Tears (1939, Oxford), J B Priestley's When We Are Married (1940, with Cyril Cusack, Llandudno) and The Golden Grain (1952, with Betty Balfour, Embassy Theatre, London).

Sheridan was one of the first actresses to appear on television in 1936 when the medium was in its infancy, and was interviewed on the BBC TV magazine programme Picture Page. The BBC had commenced the world's first regular scheduled Service that year from Alexandra Palace. Dinah's acting credits included appearing with Robert Helpmann in The Maker of Dreams (1937); and in Gallows Glorious, the first ever three-Act play on television (1938).

Sheridan married four times: first to actor Jimmy Hanley (1942–1952), with whom she had three children, then to Business executive John Davis (1954–1965), then to actor John Merivale (1986–1990, his death) and finally to Aubrey Ison (1992–2007, his death). During her marriage to Aubrey Ison, the couple lived in Palm Desert, California; following Aubrey's death, Dinah returned to the UK in 2007.

She received wider recognition for her acting in 1951 as the game warden’s wife in a film about African wildlife, Where No Vultures Fly. The film was notable for being largely shot on location in Africa. Although a fictional story, it was inspired by the events and life of Mervyn Cowie who had recently fought to establish the National Parks of Kenya. Given a Royal Premiere, it became one of the UK box office hits of the year and won the National Board of Review award (USA) for Foreign Film of the Year. Dinah followed this with playing the second female lead in the acclaimed The Sound Barrier (1952) directed by David Lean. The film was a popular and critical success, winning many awards including three BAFTAs, an Academy Award, a New York Critics Circle award and four National Board of Review awards. In interviews, Dinah spoke of how she was very happy to take a supporting role to Ann Todd in order to be directed by Lean. Sheridan then starred opposite Dirk Bogarde in Appointment in London (1952) and had a featured role as Grace Marston in The Story of Gilbert and Sullivan which was made as part of the Coronation celebrations of 1953. She was Britain's top female box-office star of 1953, according to the Motion Picture Herald's poll of film exhibitors. This issued a ranking of the 'Top Ten British Box-Office Stars' each year.

One of her enduringly popular roles was as Wendy McKim in the comedy Genevieve (1953), where her "comic instinct and control were precise and stylish.". The film won a BAFTA, a Golden Globe and a National Board of Review award. Her other most memorable screen role was as Mrs Waterbury, the mother of the Railway Children in the famous film The Railway Children (1970). She made only one more cinema film after The Railway Children: The Mirror Crack'd (1980), which starred Elizabeth Taylor and Rock Hudson, with Angela Lansbury as Miss Marple. That role was an atmospheric cameo appearance with Anthony Steel and Nigel Stock in the 'film within a film' Murder at Midnight.

Dinah Sheridan's second husband, film executive John Davis, whom she married in 1954, insisted that she quit acting and stay at home with her children. After their 1965 divorce (which was granted to Sheridan on the grounds of cruelty), she resumed her career appearing in Margaret Williams' comedy Let’s All Go Down the Strand (1967, alongside Gladys Cooper and Evelyn Laye, Phoenix Theatre, London).

Her son Jeremy Hanley became an accountant, Conservative Party Chairman and government minister under John Major's administration. Her daughter Jenny Hanley became an Actress and a co-presenter of the British television series Magpie. Another daughter died in infancy. Throughout her life she remained close friends and correspondent with several former co-stars, particularly Dame Gladys Cooper, Sir John Gielgud, Douglas Fairbanks Jr and Sir Dirk Bogarde. Cooper was the stepmother of actor John (Jack) Merivale, Dinah's long-time partner (1968–86) and later husband (1986-90, his death). For many years John Merivale required kidney dialysis which Dinah learnt to perform at home.

Sheridan featured in several major television plays (in the BBC Play of the Month and Play for Today strands) most notably Oscar Wilde's An Ideal Husband (1969, with Margaret Leighton, Keith Michell, Jeremy Brett and Susan Hampshire); and John Galsworthy's Loyalties (1976, with Edward Fox amongst others). Both were produced by Cedric Messina and directed by Rudolph Cartier. In 1983 she made a guest appearance in the BBC science fiction television series Doctor Who as the Time Lady Chancellor Flavia in the 20th anniversary special, "The Five Doctors".

When Sheridan was the subject of the UK TV show This Is Your Life in 1979, guests in the studio included John Gielgud, Evelyn Laye, Douglas Fairbanks Jr, Betty Marsden and Charles Hawtrey, and filmed tributes from Dirk Bogarde and Tony Britton.

She co-starred with long-standing friend and colleague Tony Britton and Nigel Havers in British sitcom, Don't Wait Up (1983–90, BBC TV) which had audiences of over 15 million. She was a regular in the ITV series The Winning Streak (1985) and Just Us (1992), and the BBC comedy series All Night Long (1994). She made a memorable guest appearance as Dotty Mayhew in BBC TV's Lovejoy special The Prague Sun (1992), which also featured Donald Pleasence and Peter Vaughan. Her last role was in 1999 as Kathleen Gilmore in the Jonathan Creek television episode "Miracle in Crooked Lane".

Sheridan died peacefully at her home in Northwood, London, on 25 November 2012, aged 92.

Let’s All Go Down the Strand began a prolonged period of success in London's West End, with Sheridan appearing in both comedic and dramatic roles for the next 25 years. She starred in Ronald Gow's A Boston Story (1968, opposite Tony Britton, Duchess Theatre); Ira Wallach's Out of the Question (1969, again opposite Dame Gladys Cooper, St Martin's Theatre), and in the title role of Ray Cooney's Move Over Mrs Markham (1972, again opposite Tony Britton, Vaudeville Theatre). She played the Countess of Chell in Waterhouse & Hall's The Card (1973, with Jim Dale, Queen's Theatre), and starred in Frances Durbridge's The Gentle Hook (1973, Yvonne Arnaud Theatre, Guildford, then Piccadilly Theatre), Samuel Taylor & Cornelia Otis Skinner's The Pleasure of His Company (1976 revival, starring opposite Douglas Fairbanks Jr, Phoenix Theatre), Agatha Christie's A Murder Is Announced (1977, opposite Dulcie Gray, Vaudeville Theatre), william Douglas Home's In The Red (1977, with Gerald Harper, Whitehall Theatre) and Noël Coward's Present Laughter (1981, with Donald Sinden and Gwen Watford, Vaudeville Theatre). The latter production was recorded and transmitted on BBC Television. During 1978/79, Dinah starred opposite John Gielgud in Half Life which toured the UK, before they both took the play to Toronto, Canada.