Holly was born in Bristol, Pennsylvania. Her mother, Michael Ann Holly, is an art Historian and the Starr Director of Research and Academic Program at the Sterling and Francine Clark Art Institute, and former professor at Hobart and william Smith Colleges. Her Father, Grant Holly, is a Screenwriter and professor of literature at Hobart and william Smith Colleges. She has two younger brothers: Nick and Alexander Innes Holly (1977–92). Holly was raised in Geneva, New York, and is a 1981 graduate of Geneva High School, where she was a Cheerleader. In 1985, she earned an undergraduate degree in English from Sarah Lawrence College in New York.

Holly's acting career began at the age of 20 when she appeared as Carla Walicki in two episodes of Hill Street Blues. At age 23, she joined the cast of the ABC television soap opera All My Children as Julie Rand Chandler (1986–1989). She portrayed the comic book character Betty Cooper in the TV movie Archie: To Riverdale and Back Again in 1990.

In 1992, Holly, her Father Grant, and their families established the "A" Fund at Hobart and william Smith Colleges in memory of her brother, Alexander, about whom Holly said, "He was a boy filled with dreams, hopes, and plans. Although he was only 14 when he died, he had traveled extensively in Europe and Central America, lived in New York City and Los Angeles, and these experiences produced in him a fascination for architecture and archaeology."

Holly appeared in the music video for Dixie Chicks' single "Goodbye Earl" (2000). She was a member of the cast of NCIS as Director Jenny Shepard from 2005 to 2008, reuniting with her former Chicago Hope co-stars Mark Harmon and Rocky Carroll. Holly portrayed the "worldly and stunning" lead medical examiner Dr. Betty Rogers, a regular character on the CTV series Motive. In 2014, she was reunited with her Picket Fences co-star, Tom Skerritt, in the movie, Field of Lost Shoes. In 2015, Holly starred in Oz Perkins' horror film The Blackcoat's Daughter. In February 2017, it was announced that Holly had joined Nicholas Gyeney's Seattle-based reality-drama, Ultra Low, set to begin filming the following March.

Holly lives in Oakville, Ontario, Canada with her three children; sons Henry, George, and Alexander Holly-Greco. Holly became a Canadian citizen in 2008.