During the height of her modeling career in the mid- to late 1970s, Hemingway was a regular attendee of New York City's exclusive discothèque Studio 54, often in the company of such celebrities as Halston, Bianca Jagger, Liza Minnelli, Grace Jones, and Andy Warhol. At such social mixers, she began to experiment with alcohol and drugs.

Hemingway's first marriage, to Errol Wetanson, ended in divorce. They met when, at age 19, she accompanied her father to the Plaza Hotel in New York City on a Business trip. Four months later she moved from Idaho to New York City to live with Wetanson as a guest at Selig's apartment at 12 East 72nd Street, which was owned by heiress Gloria Vanderbilt. It was there that Selig made Hemingway's Business and social introductions to his friends, such as Marian McEvoy, fashion Editor at Women's Wear Daily; Photographer Francesco Scavullo; fashion designer Halston; Vogue magazine fashion Editor Francis Stein; and Jon Revson, Selig's cousin. Revson, a scion of the Revson family that created Revlon cosmetics, declined Selig's offer for Hemingway to endorse Revlon, whereas later Fabergé signed her on with the largest salary of its day. Revson did come to visit both Selig and Hemingway (with the Hemingway family) in Ketchum, Idaho, to congratulate her after Hemingway's TIME magazine cover appeared in June 1975. Marian McEvoy quickly interviewed Margaux at a party given by Selig, which resulted in Hemingway's Women's Wear Daily front- and back-page story that launched Hemingway into the fashion limelight.

Hemingway made her film debut in the Lamont Johnson-directed rape and revenge film Lipstick (1976), alongside her 14-year-old sister Mariel, and Anne Bancroft. In it, she plays a fashion model who is terrorized by a rapist. The film's violent depiction of rape led it to be labeled an exploitation film, though in later years it had success as a cult film. She followed this with a supporting role in the Italian horror film Killer Fish (1979), opposite Lee Majors and Karen Black . Her following project was the comedy They Call Me Bruce? in 1982.

In 1984, Hemingway had a supporting part in Over the Brooklyn Bridge, opposite Elliott Gould and Shelley Winters. After a skiing accident in 1984, Hemingway gained 75 pounds and became increasingly depressed. In 1987, she checked into the Betty Ford Center. Attempting to make a comeback, she appeared on the cover of Playboy magazine in May 1990, and she asked Playboy to hire Selig as the creative Director for her cover story. It was shot in Belize. Despite her attempts, Hemingway's budding film career began to falter, and she took roles in several B-movies, including Killing Machine (1984) and Inner Sanctum (1991). Hemingway continued to support herself by appearing in a small number of direct-to-video films into the 1990s, autographing her nude photos from Playboy magazine, and endorsing a psychic telephone hotline owned by her cousin Adiel Hemingway. Shortly before her death, she was set to host the outdoor adventure series Wild Guide on the Discovery Channel.

Hemingway then married Frenchman Bernard Faucher. They lived in Paris for a year. She divorced him in 1985, after six years.

Hemingway experienced familial dramas throughout her life. Her relationship with her mother, Puck, was fraught with tension, but they did reconcile prior to Puck's death from cancer in 1988. She also experienced intense competition with her younger sister Mariel, who received greater accolades for her acting. In the 1990s, Hemingway went forward with allegations that her godfather had molested her as a child; her father, Jack, and stepmother, Angela, resented the allegations and stopped speaking to her. Angela told People magazine, "Jack and I did not talk to her for two years. She constantly lies. The whole family won't have anything to do with her. She's nothing but an angry woman."

On July 1, 1996, one day before the 35th anniversary of her grandfather's suicide, Hemingway was found dead in her studio apartment in Santa Monica. Though her body was found reportedly badly decomposed on July 1, the official autopsy and California death records list it as her date of death. She had taken an overdose of phenobarbital, according to the Los Angeles County coroner's toxicology report one month later, though her family had difficulty accepting the fact of her suicide. Mariel Hemingway's husband told People Magazine in 1996 that, "This [year] was the best I'd seen [Margaux] in years. She had gotten herself back together," but in a December 2005 episode of Larry King Live, Mariel said she now accepted Margaux's death as a suicide.

In a 1997 E! True Hollywood Story that profiled Hemingway's life, her mentor and close friend Zachary Selig discussed how he helped launch her early career with his initial marketing and public relations work as she became a global Celebrity, and he introduced her to yoga and the Solar Kundalini "Codex Relaxatia" paradigm as tools for success and to overcome some of her debilitating mental disorders. Selig and Hemingway spent time with the Hemingway family at their property in Ketchum adjacent to Sun Valley, where they studied Solar Kundalini, yoga, and meditation together. Hemingway continued using these relaxation skills for the rest of her life.

A 2013 television documentary film Running from Crazy, in which Margaux's sister Mariel speaks of the Hemingway family history of alcoholism, drug addiction, and suicide, contains documentary film excerpts that had been filmed by Margaux prior to her death.