She is the daughter of Susan Murphy Dermody, a film theorist, Historian, and Director. Her father is a Psychologist. Dermody's family encouraged a love of literature and the arts, and supported performing as well - her mother gave Dermody her first part when she was 5 years old in the film her mother directed Breathing Under Water (1993). Dermody attended Mosman High School in Sydney with a near-perfect UAI (99.97). During high school she was active in drama classes, as well as the Australian Theatre for Young People, and furthered her acting education with several courses at the National Institute of Dramatic Art in Sydney.

While still in high school, Dermody began getting roles in Australian television series such as All Saints (1998), and in short films. Her first major film role was in the independent thriller Black Water (2007), about a trio of people trapped in the mangroves of the North Territory by a menacing Saltwater Crocodile. Dermody's performance in Black Water earned her multiple nominations for Best Supporting Actress awards in the Australian film industry. Her next major film role was in Beautiful Kate (2009), for which she was again nominated for the AFI Best Supporting Actress Award. She had a lead role in the 2010 well-received film Griff the Invisible, and in the 2012 miniseries Bikie Wars: Brothers in Arms.

In 2013, Dermody starred in the 10-part TV series drama Serangoon Road as Claire Simpson who is married to Frank (played by Jeremy Lindsay Taylor) but having an affair with Sam (played by Don Hany).

At Christmas, 2015, Dermody starred as Vera Claythorne in BBC One's version of Agatha Christie's thriller And Then There Were None.