McNichol was born in Los Angeles, California. McNichol is half Irish on her father's side and her mother is of Lebanese descent. She appeared with her brother Jimmy McNichol in commercials and later, on her own, in guest appearances on such other series as Starsky & Hutch, The Bionic Woman, Love American Style, and The Love Boat, thanks to family friend Desi Arnaz. Her first stint as a series regular came in the role of Patricia Apple in the short-lived CBS television series Apple's Way (1974).

In 1976, she was cast as Letitia "Buddy" Lawrence in the television drama series Family (1976–80), for which she earned two Emmy Awards for Best Supporting Actress in a Dramatic Series (1977 and 1979).

McNichol began her film career in 1977, in Black Sunday, but her scenes were cut during editing. In 1978, she starred with Burt Reynolds in the comedy The End. In 1980, she played the leading role in the hit coming of age movie Little Darlings, which co-starred Tatum O'Neal, Matt Dillon, and Cynthia Nixon. Her performance was acclaimed by many reviewers, including those who disliked the film itself.

McNichol was one of the biggest teen stars of that era. She appeared on talk shows such as The Mike Douglas Show and Dinah!, and made several appearances on Battle of the Network Stars and other celebrity-based Sports shows. In 1978, she starred in the acclaimed TV movie, Summer of My German Soldier.

In 1980, she appeared with Dennis Quaid and Mark Hamill in The Night the Lights Went Out in Georgia, for which she received a six-figure salary—unprecedented for a teenager. The same year, she co-starred in Neil Simon's Only When I Laugh, and was nominated for a Golden Globe Award for Best Supporting Actress.

McNichol was nominated for a Golden Raspberry Award for Worst Actress for her performance in the 1982 movie The Pirate Movie. That same year, she suffered an emotional breakdown while playing the lead role in the comedy-drama Just the Way You Are; filming had to be interrupted for a year. She later said that the breakdown had been caused by the pressures of her childhood career.

In 1986, McNichol appeared in Women of Valor, a TV movie about American Nurses in a World War II Japanese POW camp. She made two theatrical films in 1988, You Can't Hurry Love and Two Moon Junction. In the same year, she began the role of Barbara Weston on Empty Nest, a spin-off of The Golden Girls. She left the show in 1992, but returned for its final episode in 1995. It was her last on-screen performance, though she went on to voice characters in the animated TV series Extreme Ghostbusters (1997) and Invasion America (1998).

In June 2001, McNichol announced that she had retired from acting. Her publicist released this statement:

After her retirement, McNichol taught acting at a private school in Los Angeles and devoted much of her time to charity work. In 2012, McNichol revealed that she is gay and has lived with her partner for almost two decades. She made the statement in the hopes that her openness would help young people who are bullied because of their sexuality.