Szubanski was born 12 April 1961, in Liverpool, Merseyside, England. Her mother Margaret is Scottish-Irish and came from a poor family. Her father, Zbigniew Szubanski, came from a well-off Polish family and, as recorded in the Official Archives of the Warsaw Uprising Museum, was an Assassin in a counter-intelligence branch of the Polish resistance movement in World War II. Her cousin is Polish Actress Magdalena Zawadzka. She attended high school at Siena College, Melbourne, and later studied fine arts and philosophy at the University of Melbourne.

In 1976, as a year 10 student, she captained a team on the television quiz It's Academic.

In 1985, while performing in a University of Melbourne Law Revue of Too Cool for Sandals, with Michael Veitch and Tom Gleisner, Szubanski was talent-spotted by producers from the Australian Broadcasting Corporation (ABC), who convinced her to join up with some other university friends in creating a television Sketch comedy show, The D-Generation.

Szubanski starred in the 1995 film Babe as Esme Hoggett. She reprised her role in the 1998 sequel, Babe: Pig in the City. She then teamed up again with director/producer George Miller to voice the role of Miss Viola in the animated films Happy Feet and Happy Feet Two.

In 1999, Szubanski created, wrote, co-produced and starred as Margaret O'Halloran in the Dogwoman series of TV films, a detective style show based on the idea an expert "dog-whisperer" who, by treating Problem dogs, inadvertently stumbles upon and solves human crimes.

In 2004, Szubanski advertised the airline Jetstar. Szubanski became a spokesperson for the dieting company Jenny Craig in November 2008. Szubanski joined Jenny Craig weighing 110 kg and had been diagnosed with sleep apnoea. By July 2009, she had lost 36 kg to weigh 85 kg. She later regained weight, then was dropped as a spokesperson for Jenny Craig. However, subsequent weight loss led to her being re-signed as their spokesperson. She was later again dropped from Jenny Craig. She was also featured in commercials for Telstra in 2014.

In 2006, she hosted a five-part series on the Nine Network, called Magda's Funny Bits, which showed "never-before-seen" footage of some of her most famous characters from the comedy show Fast Forward. Branded as "no frills", it attracted insufficient ratings and did not continue. She had a similar short-lived result as host of the Network Ten clip show The Spearman Experiment in 2009.

In 2007, Szubanski ventured into musical comedy, taking on the role of william Barfee in the Melbourne Theatre Company production of the hit Broadway musical The 25th Annual Putnam County Spelling Bee. Variety described her performance as "sensationally good." Australian Stage said, "Magda Szubanski as the Eric Cartman-esque william Barfee steals the show."

In 2008, she again participated in some gender-blind casting, taking on the role of pint-sized gangster Big Jule in a major stage production of Guys and Dolls.

In 2009, she appeared on Who Do You Think You Are? where she explored her father's Polish Resistance activities as well as the story of her shell-shocked Irish grandfather and her Sculptor ancestor Luigi Isepponi who assisted in making the Death mask for william Burke, half of the duo Burke and Hare, notorious grave Robbers and serial killers.

In 2010, she appeared in the first Indigenous Musical film Bran Nue Dae as Roadhouse Betty alongside Geoffrey Rush, Ernie Dingo, Missy Higgins and Deborah Mailman. The film was directed by Rachel Perkins, daughter of the Aboriginal Activist Charlie Perkins.

On 14 February 2012, Szubanski came out, in a statement supporting same-sex marriage timed to coincide with Valentine's Day. Later that day, she stated that she "absolutely identifies as gay" in an interview on Australian TV current affairs program The Project.

She is single and during the 2013 Australian Federal election she tweeted light-heartedly about the lack of policy catering for single people.

Academy Award Winner and friend Geoffrey Rush launched her book and wrote in The Guardian: "I was absorbed in preparing for King Lear when I read the book. The classical stature of that particular father-daughter relationship didn't go unnoticed. Magda grew up in the Shadow of a difficult reckoning — the summation, the questioning, the Elizabethan sense of settling the bill with one's parents. As she phrases it: her father needed to forget— she needed to remember. The only way forward was back. Her book riffs a major life in a reflective minor key. I've got lost in Joyce's Dublin, Woolf's Bloomsbury, the Bronte Sisters' Yorkshire moors. Now I'm enthralled with Magda Szubanski's Croydon, Australia's own collective sub-conscious suburb, the architecture of which she deftly anoints as Bauhaus's "bastard child"…Reckoning is really a non-fiction novel – and its invitation into Magda's story is infectious."

In 2015, Szubanski released her award-winning memoir Reckoning. In 2016 Magda’s memoir Reckoning won several awards and beat some of Australia’s top literary authors to win the TBA. Reckoning also won the $40,000 Douglas Stewart Prize for Nonfiction, and "Book of the Year" and "Biography of the Year" at the Australian Book Industry Awards.

In 2017, she became one of the most prominent faces of the Marriage Equality campaign in Australia and the co-chair of Australian Marriage Equality rated her crucial in the success of the "Yes" campaign