Lancashire's final role under her ITV contract was Gertrude Morel in an adaptation of D.H. Lawrence's 1913 novel Sons and Lovers, airing in January 2003. The portrayal –her first of a mother with adult children– followed Gertrude's transformation from a young bride into a fifty-something woman ravaged by her life experiences of poverty and domestic abuse. Lancashire re-read the novel several times prior to filming, and identified with the themes of filial and marital relationships she had been unable to appreciate as a GCSE student. The miniseries gave her a sense of conviction in her career path, stating ahead of the broadcast in 2002: "whatever the reason I do what I do, I felt I had come to a point where I could stop searching after this". Reviewing the serial Paul Hoggart of The Times wrote that Lancashire "steals the show" with a "performance of immense subtlety and quiet strength, proof, if we still needed it, that she has matured into a terrific Actress." Conversely Andrew Billen, writing in New Statesman, wrote that "Sarah Lancashire was no revelation at all", purely because she had "long since proved herself a formidable actress".

Her father, Geoffrey Lancashire (1933–2004), was a television scriptwriter noted for his work on the soap opera Coronation Street and situation comedies such as The Cuckoo Waltz. Her mother, Hilda, worked as Geoffrey's personal assistant. She has three brothers, one her elder, one younger and a twin. Lancashire was educated at Oldham Hulme Grammar School between 1976-81.

Sarah-Jane Abigail Lancashire was born on 10 October 1964 in Oldham, Lancashire.

Lancashire has stated she was never driven by the ideas of fame and status. Her background had inspired an initial interest in working behind the scenes in television. She did not give serious thought to the performing arts until the age of 18. After winning a place at the Guildhall School of Music and Drama, Lancashire realised that she enjoyed acting. She graduated in 1986, describing her time as a student there as "tremendous" but "seriously hard work and quite intimidating".

In 1987, Lancashire made a brief appearance in Coronation Street as Wendy Farmer, a prospective lodger of series regular Jack Duckworth (Bill Tarmey). In the late 1980s, she also appeared in an episode of the children's anthology series Dramarama, and a single episode of the ITV sitcom Watching.

In 1990, Lancashire received her "big break" — the role of Linda in a production of Willy Russell's Blood Brothers at the Albery Theatre. Although she thoroughly enjoyed performing in London's West End, she found it difficult to reconcile the experience with raising two young children in Manchester.

Lancashire joined on a three-month contract, continuing to teach at Salford University for another year. Raquel first appeared on 25 January 1991 and departed on 10 May; having moved to London to try to launch a modelling career. Lancashire had initially been reserved about Raquel's characterisation, noting that her "acidic side" could have rendered her the "street bitch" had it been embellished. She took care to highlight Raquel's potential, playing against what had been written to make her more comic, evoking audience sympathy. Between 26 September and 19 October 1991, Lancashire played the title role in an adaption of Educating Rita at the Queen's Theatre, Hornchurch. Following Raquel's reintroduction on 30 December 1991, Lancashire committed herself to Coronation Street full-time. She would remain in the series until 1996, earning a reported annual salary of £90,000.

In December 1995 Lancashire starred in the spin-off straight-to-video film Coronation Street – The Cruise, a 75-minute special detailing Raquel and Curly's honeymoon. The special was advertised as being exclusive to video, and 750,000 copies were sold, to the value of £10 million. Lancashire departed Coronation Street in 1996 due to her heavy work schedule and Desire to pursue other projects. She had also tired of the fame the role brought her, shying away from personal appearances and interviews with television magazines. Her final scenes attracted 20 million viewers. Lancashire's performance in the role saw her nominated in the Most Popular Actress category at the 2nd National Television Awards in October 1996.

Lancashire's next role was district nurse Ruth Goddard in the ITV drama series Where the Heart Is, which began airing in 1997. Also in 1997 she filmed a situation comedy for the BBC, Bloomin' Marvellous, in which she played Liz, one half of an argumentative married couple trying for a baby.

However, due to poor viewing figures and a damning critical response the sitcom was not renewed. Regarding the negative reception to the series, her co-star Clive Mantle saracastically remarked "I've seen Murderers and rapists get a better press than we did". Lancashire continued to star as Ruth Goddard in Where the Heart Is for its second and third series in 1998 and 1999. In 1998 she was nominated for her second National Television Award for Most Popular Actress. In February 1999 she made a guest appearance in the British dark comedy anthology series Murder Most Horrid alongside Comedian Dawn French. The pair played two yachtswoman whose journey ends with fatal repercussions. In April it was announced that Lancashire would be quitting Where the Heart Is, despite an offered pay rise. At the time, Where the Heart is was the third most popular drama on British Television, regularly attracting 12 million viewers. Lancashire's decision was reportedly influenced by the series filming away from home, and a fear that remaining in the series long term would harm her career. In January 2000 she expanded on her decision, stating that Ruth "was too chocolate-boxy, no longer a challenge".

Following Lancashire's success in connecting with a television audience, ITV sought to secure her exclusively to their network in a two-year golden handcuffs deal, which was finalised in July 2000. Lancashire became the first Actress to be given such a contract with ITV. The deal, worth £1.3 million, made Lancashire the highest paid Actress in British Television. Discussing the exclusive signing ITV controller of drama Nick Elliott identified Lancashire as being someone with "a great range [who] creates a tremendous empathy with an audience". He also admitted that heavy interest in Lancashire from the BBC had been a factor in giving her the contract, and blocking her from working with other networks. Her last role on BBC One during this period was comedy drama Gentleman's Relish, an adaptation of the Miles Gibson novel Kingdom Swann. The television film, which aired on New Year's Day 2001, was Lancashire's first in the costume drama genre; she played a housekeeper harbouring romantic feelings for her employer (Billy Connolly).

Her first role under her new contract with ITV was the six-part drama The Glass opposite John Thaw. The series, which aired between May and June 2001 saw Lancashire star as a saleswoman for a double-glazing company who ends up caught in a love triangle with her boss and his nephew. Retrospectively, the series was judged not to be a success; it averaged 5.8 million viewers, less than rival show on BBC One, Messiah. In August 2001, Lancashire married television executive Peter Salmon, in a low-key ceremony held at Langar Hall, Nottinghamshire. Salmon had proposed to Lancashire in New York during a holiday at Easter time 2001. The two began a romantic relationship in the summer of 2000, though they had first met several years earlier whilst she was portraying Raquel on Coronation Street and he was employed by Granada Studios, which produces the soap opera. In October Lancashire starred in an adaptation of the Michelle Magorian novel Back Home as Peggy Dickinson, a woman adjusting to life in post-war Britain after having been separated from her family during the war.

In March 2002 Lancashire received an Honorary Master of Arts degree from Salford University. In April, She starred in two-part psychological thriller The Cry, which she described as her "most naked role yet". She played a social worker grieving her second still-born child who is determined to protect a baby she perceives to be at risk of abuse. Lancashire drew on her own experiences of clinical depression in her depiction of her character's mentality. Her performance saw her awarded with a Golden Nymph award for Best Performance by an Actress in a Mini-Series at the Monte-Carlo Television Festival. In April it was reported that Lancashire had been lined up play the lead role in comedy drama Life Begins, which creator Mike Bullen had written with Lancashire in mind. However, by June, Lancashire had exited the drama, unwilling to commit to a potentially long running series. Later that month BBC News and newspaper The Guardian reported that Lancashire had exited her exclusive deal with ITV, which would not be renewed after it expired in the Autumn. The decision was reportedly influenced by Lancashire's Desire to reduce her workload and to have the freedom to take on other roles. In September 2002 she appeared in a two-part crime drama pilot, Rose and Maloney, as legal investigator Rose Linden. On 22 December she appeared in the television movie Birthday Girl as Rachel Jones, who plans a party to celebrate being in remission from a serious illness, only to discover that the disease has returned.

While pregnant with her third child, Lancashire began an 18-month career break, the longest of her working life. In April 2003, Lancashire gave birth to her third son, Joseph. Lancashire's first job after returning to work was her directorial debut on an episode of the BBC One anthology series The Afternoon Play. For "Viva Las Blackpool" she was given the Best Newcomer Award (sponsored by BBC Birmingham) at the Birmingham Screen Festival and the Best New Talent Award at the Royal Television Society (Midlands) awards in 2004. The venture also earned her first British Academy Television Awards nomination in 2005 for Best new Director of Fiction. Lancashire next filmed three two-part stories for Rose and Maloney, following on from the pilot episode in 2002. The delay between shooting for the pilot and its follow-up was a result of Lancashire's career break and problems reconciling her availability with that of co-star Phil Davis.

In 2005 Lancashire starred in The Rotters' Club as a housewife in 1970s Birmingham. Also in 2005 she appeared in the BBC television film Cherished as Angela Cannings, a British woman who was wrongfully convicted of killing her two baby sons. Lancashire was proud to be involved with the project, having greatly admired Cannings strength of character during her ordeal, and being able to relate to her sense of anguish as a parent. In December 2005, Lancashire returned to West End theatre, taking on the role of Miss Adelaide in the Donmar Warehouse production of Guys and Dolls at the Piccadilly Theatre. Lancashire was due to stay with the production until March 2006, but due to a severe chest infection made her last appearance on 4 January. In 2006 Lancashire accepted an invitation to write a short autobiographic entry in Who's Who, an establishment "bible" of influential figures judged to have had a significant impact on British life and culture. Lancashire's only television acting role in 2006 was as house-wife and cake-maker Elaine in the BBC comedy drama Angel Cake. In November she presented an episode of the Five documentary series Disappearing Britain in which she interviewed people with memories of Wakes Week holidays in Blackpool during the early 20th century. In February 2007 she made an appearance in the E4 teen drama series Skins. This was followed by a leading role in the BBC Two television drama Sex, the City and Me as solicitor Ruth Gilbert. In October, Lancashire appeared in her first feature film, David Nicholls' And When Did You Last See Your Father? in which she played aunt Beaty. In December, she played the supporting role of Mrs Corney in the BBC's 2007 adaption of Charles Dickens' 1838 novel Oliver Twist. Whilst ambivalent about the serial as a whole, The Daily Mirror's Jane Simon singled Lancashire out for praise stating that she "really sets the tone for the cold, unfeeling world into which orphaned Oliver is born."

Subsequent television roles include the costume dramas Oliver Twist (2007), Lark Rise to Candleford (2008–2011) and The Paradise (2012), and the fact based dramas Cherished (2005) and Five Daughters (2010). Since 2012, Lancashire has earned extensive critical acclaim for her roles in the contemporary drama series Last Tango in Halifax (2012–2016) and Happy Valley (2014–present). Lancashire has also appeared in the feature films And When Did You Last See Your Father? (2007) and Dad's Army (2016), and West End theatre productions including Blood Brothers in 1990, Guys and Dolls from 2005 to 2006 and Betty Blue Eyes in 2011.

Between 2008 and 2011 Lancashire narrated the BBC One series Lark Rise to Candleford, a costume drama based on Flora Thompson's memoir of her Oxfordshire childhood in the 1880s. In April, she appeared in the opening episode of the 2008 series of Doctor Who, as "an enigmatic and powerful businesswoman" who Lancashire described as a "warped Mary Poppins". She was amongst a number of high-profile actors the series' executive Producer Russell T Davies secured for the fourth series of the science-fiction drama as part of his intention to make it "bigger and blowsier". In 2009, Lancashire starred in the BBC One musical drama series All the Small Things. She played Esther Caddick, a full-time mother who starts a choir after her husband leaves her for a more glamorous woman. In July that year the Actress was made a honorary Doctor of Letters by the University of Huddersfield. Following this, she reunited with Director Coky Giedroyc, who had directed her in Oliver Twist, for a 2009 television adaptation of Emily Brontë's 1847 novel Wuthering Heights in which she played housekeeper Nelly Dean. In 2010 Lancashire portrayed Rosemary Nicholls, mother of a murder victim, in the three-part BBC drama Five Daughters; a depiction of the Ipswich serial murders from the perspective of the victims and their families. Though the pair never met, Lancashire felt it important to receive Nicholls consent before filming, and was later "humbled" and "relieved" to receive a feedback letter thanking her for her portrayal. Also in 2010 she guest-starred in the police drama series Inspector George Gently.

In March 2011 Lancashire began starring in a new Cameron Mackintosh musical, Betty Blue Eyes, at the Novello Theatre. In the production, a loose adaptation of the 1984 film A Private Function, she starred as Joyce Chilvers, an aspirational housewife who Lancashire describes as "brittle" and "capricious". Despite positive reviews the musical closed in London on 24 September 2011, after a run of just six months. For her performance Lancashire was nominated for the Laurence Olivier Award for Best Actress in a Musical. In 2012 she appeared as lady's maid Miss Whisset in the penultimate episode of the 2010 revival of Upstairs Downstairs. In September 2012 Lancashire began appearing as Head of Ladieswear Miss Audrey in the six-part series The Paradise set in a department store in Northern England in the late 19th century. Lancashire described her character as "a true archetypal spinster" who has long denied herself a romantic life and who begins to feel undermined by a younger colleague.

Between November 2012 and December 2016 Lancashire appeared opposite Anne Reid and Derek Jacobi in the BBC drama series Last Tango in Halifax. In the series she plays Caroline, an Oxford-educated headmistress who feels that her mother's second marriage gives her "permission" to be herself. Caroline's same-sex relationship with a fellow Teacher resulted in Lancashire receiving more fan mail than for any other role, largely from women telling her that the series had helped them to come out. Due to the under-representation of gay characters in television, Lancashire felt it particularly important that Caroline's experience would not be depicted inaccurately. In her portrayal she opted to focus on the "humanity" of the character, rather than her sexuality. Filming of the second series clashed with filming of the second series of The Paradise, which necessitated Lancashire leaving The Paradise partway through its second series. For her role as Caroline she was nominated for the British Academy Television Award for Best Supporting Actress in both 2013 and 2014, winning in 2014. At the 2015 Hay Festival Lancashire stated that of all the roles she has taken on in her career Caroline is the one she is most proud of, citing the "extraordinary impact" of the character. After airing three full series, Last Tango in Halifax returned for a fourth series in December 2016, consisting of two episodes which were promoted as "Christmas Specials".

In 2014, Lancashire re-united with Last Tango in Halifax Writer Sally Wainwright on the crime drama Happy Valley. Wainwright was keen to write another role for Lancashire after being "blown away" by her performances in Last Tango in Halifax. Lancashire portrays single-grandparent Catherine Cawood, a police sergeant still dealing with the aftermath of her daughter's rape, and subsequent suicide, eight years earlier. Mark Lawson of The Guardian identified the performance as a career best for Lancashire, stating that she perfectly conveyed "the script's demandingly contradictory notes of tragedy, comedy, love, guilt, weakness and courage". For this role she earned the TV Choice Award for Best Actress in 2014, and the Royal Television Programme Award for Best Actress in 2015. In September 2014 the Radio Times listed her as one of the thirty most powerful women in British television and radio. In April 2015 she received her fourth BAFTA television nomination, her first in the Best Actress category. In June 2015 she was named Best Actress in a Drama Series at the Monte Carlo Television Festival.

In March 2015 Lancashire began filming a television adaptation of Ronald Harwood's 1980 play The Dresser. In the teleplay, which aired in October 2015, Lancashire portrayed stage manager Madge, whose unrequited love for 'Sir' (Anthony Hopkins), the head of a repertory theatre company, pits her at odds with his dresser and confidant, Norman (Ian McKellen). Lancashire described The Dresser as "the greatest piece ever written about actors" and found both working with and observing McKellen and Hopkins – "two of the greatest actors ever" – an extraordinary experience. Following an airing on the American premium cable channel Starz in 2016, Lancashire was nominated for the 2016 Critics' Choice Television Award for Best Supporting Actress in a Movie or Miniseries Lancashire played Mrs Pike in the 2016 feature film Dad's Army, based on the situation comedy series of the same name. In early 2017, she began voicing the character of "Headmonstress" Mrs Twirlyhorn in the animated pre-school series School of Roars, which airs on Cbeebies.

Despite Lancashire's concerns regarding the decision to extend the story told in Happy Valley, Wainwright's "genuine" storytelling and "integrity" convinced her to return for a second series, which aired in 2016. Lancashire stated that she found the second series as "emotionally brutal" as the first; disclosing to The Independent that she inhabited Catherine's emotional pain for the entirety of the shoot. Whilst promoting the second series, Lancashire also refuted criticism about the level of violence towards women in the series, stating she "would never condone anything which [she] thought was salacious, titillating, or gratuitous" and that Catherine's experience represented an "absolutely honest portrayal of what a female police officer can be subjected to". For her role in the second series of Happy Valley, Lancashire won the 2017 National Television Award for Best Dramatic Performance, and the BAFTA TV award for Best Actress.

Lancashire was appointed Officer of the Order of the British Empire (OBE) in the 2017 Birthday Honours for services to drama.