Born in Chatham, New York, she was working as a telephone switchboard operator in White Plains, New York when her good looks brought about the opportunity to pursue a career in modeling. Signed by the John Robert Powers Agency in New York City, she was subsequently discovered by Howard Hughes, who gave her a screen test. Persuaded to go to Hollywood in late 1939, she signed briefly with 20th Century Fox, was under contract to Warner Brothers in 1941, and then with Columbia from 1942 to 1948.

She made her film debut in 1940, working for the next two years in small roles. In 1942, her big break came with Republic Pictures when she was cast in the leading female role in the twelve-part adventure film serial Spy Smasher, a production that has been ranked among the best serials ever made. Chapman soon began receiving more leading roles and appeared opposite important stars such as Edward G. Robinson and George Sanders. With America's entry in World War II, she entertained the troops, worked for the War bond drive and at the Hollywood Canteen. She also starred in the famous pro-Soviet war film Counter-Attack, released in 1945.

During the 1950s, Chapman continued to perform mostly in secondary film roles, notably in Billy Wilder's 1955 hit The Seven Year Itch. However, with the advent of television, she kept busy into the early 1960s with guest appearances in a number different shows including Rawhide, Perry Mason, and Four Star Playhouse.

Chapman was reportedly asked to audition for the role of "Old Rose" Dawson-Calvert in the 1997 James Cameron epic Titanic but was prevented by poor health.

Marguerite Chapman died August 31, 1999, aged 81, and was interred in Holy Cross Cemetery, in Culver City, California. Her funeral was held on September 4, 1999, at St. Charles Borromeo Catholic Church in North Hollywood, California, where she was a member.