Prior to making her stage debut at the age of 19, Henshall trained at Laine Theatre Arts in Epsom, Surrey. Her debut performance was in the Cascade Revue at the West Cliff Theatre in Clacton-on-Sea. In the late 1980s and early 1990s, she took part in a touring production of A Chorus Line as Maggie. Her West End debut came shortly thereafter when she was cast in Cats, making appearances as Jemima, Demeter, Griddlebone and Grizabella.

In 1988, at the age of 21, Henshall was cast in Miss Saigon as one of the bargirls, showing at the Theatre Royal, Drury Lane. She then went on to originate the role of Aphra in Children of Eden at the Prince Edward Theatre. The summer of 1989 saw her at the Chichester Festival Theatre performing in plays by Shakespeare, Molière as well as a role in the musical Valentine's Day, based on You Can Never Tell by George Bernard Shaw.

In 1992, at the age of 25, Henshall was cast as Fantine in Les Misérables. Her first starring role came in the 1993 trans-Atlantic transfer of the Broadway smash Crazy for You which opened at the Prince Edward Theatre. Her performance earned her the first of five Olivier Award nominations. In 1995, Henshall starred in She Loves Me, winning the Olivier as Best Actress in a Musical. That same year, she performed a concert of Gershwin songs at London's Royal Festival Hall. Later, in October, she recreated her role of Fantine for the 10th Anniversary Concert performance of Les Misérables at the Royal Albert Hall. In 1996, she took on the role of Nancy in Producer Cameron Mackintosh's hit revival of Oliver! at the famed London Palladium. In 1997, Henshall originated the role of Roxie Hart in the West End transfer of the successful Broadway revival of Chicago. For this role, she received her third Olivier nomination for Best Actress in a Musical, which went to her co-star Ute Lemper.

Henshall's other Olivier nominated roles are Polly Baker in the original London production of Crazy For You (1993–94), Roxie Hart in the revival of Chicago (1997–98) and the title roles in the original productions of Peggy Sue Got Married (2001) and Marguerite (2008). She made her Broadway debut in 1999 as Velma Kelly in Chicago and returned to the Broadway production to play Roxie Hart in 2010. She also starred as Mrs Wilkinson for two years in the West End production of Billy Elliot the Musical (2014–16).

Henshall's Broadway credits include Stephen Sondheim's Putting It Together, Chicago (as both Velma and Roxie), and The Vagina Monologues. In 2000 she guest-starred in an episode of Law & Order titled "Panic"; she played an author named P.K. Todd. Her first feature film, a musical version of A Christmas Carol with Kelsey Grammer, aired on NBC in the United States in November 2004 and was released as a commercial attraction to theatres in the UK and Europe. In January 2006 she appeared in the four-part BBC Television series The Sound of Musicals.

Henshall was cast in the title role of the stage musical adaptation of the Francis Ford Coppola film Peggy Sue Got Married, which opened in London in August 2001 to mixed reviews. Although it closed after a run of just eight weeks, she was once again nominated for an Laurence Olivier Award for her performance.

She met actor and singer Tim Howar, her male co-star lead in the West End production of Peggy Sue Got Married. The couple married in 2004 and have two daughters. The couple announced their split in August 2009, with Henshall stating that she remains "good friends" with Howar. They divorced in January 2010.

Henshall was born in Bromley, London. Her father, David, was a Journalist, later the Editor of the East Anglian Daily Times, a Suffolk morning newspaper. Henshall's early ambition was to be a ballet Dancer, but she lacked the necessary physique. Her sister, Noel, died in 2007 of a drugs overdose while living in San Francisco.

In 2008, Henshall replaced Natalia Bestemianova as a judge on the ITV1 show Dancing on Ice alongside Robin Cousins, Karen Barber, Nicky Slater and Jason Gardiner. Her appointment to The Ice Panel caused some controversy as she was the only judge with no experience in ice skating. She returned for a second series in 2009. Following the conclusion of the 2009 series, Henshall said on Angela and Friends the Sky1 TV programme that she was glad that she was away from Dancing on Ice. Her replacement for the 2010 series was Emma Bunton.

She returned to the role of Roxie in Chicago at the Cambridge Theatre, London, on 14 December 2009 and completed her run on 24 April 2010. This was the second time Henshall played the role in London, having created it in 1997. She stated in an interview that she felt more comfortable in the part the second time around, being in her forties. She has stated that, "Anyone who plays the role of Roxie should be in their forties, as they have lived and learned". She has also recently played Roxie in the Broadway company of Chicago.

In 2011 she also appeared as a theatre actor in an episode of the HBO comedy Curb Your Enthusiasm that aired 14 August, as well as a Lawyer in The Case, a 5-part legal drama that aired from 31 October to 4 November on BBC One.

Henshall and Daniel Bowling (director of musicals) have written a book, So You Want to Be in Musicals?, published in 2012. In 2014, it was announced that she would play Mrs Wilkinson in Billy Elliot The Musical from 12 May. After two years in the production, she became the final Actress to take on the role before the show's closure.