Arquette was born in New York City, the daughter of Brenda Olivia "Mardi" (née Nowak; 1939–1997), an Actress, poet, theater operator, Activist, acting Teacher, and therapist, and Lewis Arquette, a film actor, Screenwriter, and Producer. Her paternal grandfather was Comedian Cliff Arquette. Her mother was Jewish, from a family that emigrated from Poland and Russia. Her father, whose family's surname was originally "Arcouet", was of part French Canadian descent. Her father was a convert from Catholicism to Islam; through him, Arquette is distantly related to Explorer Meriwether Lewis. Her siblings, Patricia, Alexis, Richmond, and David, are also actors.

Arquette dated Toto keyboardist Steve Porcaro in the 1980s. The song Rosanna was partly based on her.

Arquette has appeared in both television and screen films. In 1982, she earned an Emmy Award nomination for the TV film The Executioner's Song. However, she was unhappy with the film's nude scene, remarking in an interview that the idea of the general public seeing her naked made her feel uncomfortable and exploited, and that most of the offers she'd received since demanded that she similarly expose herself. Arquette's first starring role was in John Sayles's 1983 film, Baby It's You, a highly regarded but little seen film. She starred in Desperately Seeking Susan (1985) alongside pop singer Madonna, for which she won a British Academy Film Awards (BAFTA) for her "supporting" role despite her clearly being the lead. Madonna was breaking out at the time and though many feel that while Arquette's performance was central to the movie's success, Madonna made the movie into a mainstream hit. She had negotiated a deal where she would provide a song for the movie. "Into The Groove" became a huge hit for Madonna as did the movie itself. In an interview at the time, Arquette said "The two questions I hate the most are 'What was it like working with Madonna?' and 'Are you the Rosanna in the song "Rosanna"?'" Following the commercial and critical success of Lawrence Kasdan's Silverado in 1985, and the failure of both After Hours and 8 Million Ways to Die, she quit Hollywood to work in Europe where she acted in Luc Besson's The Big Blue (1988).

In 1989, Director Martin Scorsese offered her a part in New York Stories. Other movies of note are Pulp Fiction and the David Cronenberg film Crash and the Australian film Wendy Cracked a Walnut (1990) (also known as …Almost). In 1990, Arquette appeared on the cover and in a nude pictorial in Playboy's September issue, although she claimed it was without her prior knowledge or consent.

In recent years, Arquette has expanded into directing, including the documentaries Searching for Debra Winger (2002) and All We Are Saying (2005); she also produced both projects.

In 2009, she joined Fit Parent Magazine, founded by Craig Knight, as Editor at Large. Arquette stars in the French thriller The Divide, directed by Xavier Gens.

In 2010, Rosanna Arquette became Goodwill Ambassador for The Womanity Foundation.

In August 2013, Arquette married her fourth husband, investment banker Todd Morgan, following a two-year engagement. Her previous marriages, to Director Tony Greco, film Composer James Newton Howard, and restaurateur John Sidel, all ended in divorce. She has one daughter, Zoe Bleu, with Sidel.