Sandra Peabody was born on January 11, 1948 in Portland, Oregon.

Peabody graduated from Neighborhood Playhouse School of the Theatre and studied with master acting Teacher Sanford Meisner while studying at Carnegie Mellon University. She quit acting in the mid 1970s. Most of the actors that portrayed the villains in The Last House on the Left (1972) stayed in character, and it caused her to feel genuinely frightened throughout most of the shoot.

She was later cast alongside Spalding Grey and Philip Baker Hall in the 1971 film Love-In 72. At 24 years old, Peabody rose to international prominence when she was cast in Wes Craven's brutal and controversial 1972 film The Last House on the Left, about two teenage girls, Mari Collingwood (played by Peabody) and Phyllis Stone (played by Lucy Grantham) who are kidnapped and brutally raped by a gang of psychotic convicts who recently escaped from prison. The film was a critical and commercial success, earning more than $3 million at the American box office. Her performance was generally met with positive reviews. Editor Stefano Lo Verme compared Peabody's performance as Mari and the trajectory of her career to the performances of Marilyn Burns as Sally Hardesty in The Texas Chain Saw Massacre (1974) and Jamie Lee Curtis as Laurie Strode in Halloween (1978) and their subsequent line of work within the horror genre.

Peabody was later cast in the horror films Voices of Desire (1972), and Massage Parlor Murders! (1973), the latter being a grindhouse film that has recently been released on DVD and Blu-ray. Her next role was Olga in the satirical exploitation film Filthiest Show in Town (1973). Peabody starred alongside Barbara Eden and John Bennett Perry in the musical Annie Get Your Gun that ran at the Shady Grove Music Fair, between 1973 and 1974.

She later starred in Case of the Full Moon Murders (1973). In 1974, Peabody had a cameo role in the horror film Legacy of Satan. The following year, Sandra starred in the comedy film Teenage Hitchhikers, which was about a couple of young hitchhikers who embark on a cross country trip in search of freedom, excitement and independence. The film was met with generally positive reviews. In a 2016 editorial for the website Birth.Movies.Death., Actress Barbara Crampton noted that Peabody was one of the first actresses to be labeled as a "scream queen" due to her frequent appearances in horror films, stating:

After appearing in Teenage Hitchhikers, Sandra quit acting. In 1975, Peabody worked on the script continuity for the exploitation film Video Vixens. Subsequently, Sandra began to distance herself from the exploitative films that she was becoming known for and began to transition into children's programming. In 1983, she joined Mary Lee Fones and Karen Kalergis in an effort to bring child friendly content to cable systems beyond prominent film industry locations such as Los Angeles and New York. The same year, Peabody created the half-hour children's program Get Moving. In 1990, Sandra wrote and produced the television series Where in the World. The series lasted until 1995. In 2000, David A. Szulkin interviewed Peabody for his book, Wes Craven's Last House on the Left, which tells the inside story of making the film.

In 2001, Peabody wrote and produced the educational series Zone In. She created more entries in 2007. Peabody has appeared in several critically acclaimed horror film documentaries through archive footage such as Going to Pieces: The Rise and Fall of the Slasher Film (2006) and Never Sleep Again: The Elm Street Legacy (2010). As of 2018, Peabody is reported to be an acting coach in the Portland, Oregon area.

In a retrospective interview, David Hess discussed the on set relationship between him and Sandra, stating: "Sandra was an innocent and I held my character. She didn’t want to get anywhere near me."