Thompson's film appearances include Four Weddings and a Funeral (1994), Persuasion (1995), Emma (1996), Dancing at Lughnasa (1998), Gosford Park (2001) and Harry Potter and the Deathly Hallows – Part 1 (2010). Her television roles include playing Stella Crawford in the BBC soap opera EastEnders (2006–07) and Rosemary Piper in the ITV soap opera Coronation Street (2018).

From 1995 to 2015, Thompson was married to actor Richard Lumsden. They have two sons: Ernie James (born 1997), and Walter Eric (born 2000). Thompson is a charity Ambassador for Dan's Fund For Burns, and ran the 2010 Marathon for CINI, a charity supporting vulnerable families in India, and 24th Tottenham, a London-based group for children and young adults with special needs.

Thompson played the role of child abuser Stella Crawford in the BBC One soap opera EastEnders. She came into the show as Phil Mitchell's Lawyer and they gradually developed a romantic link. Stella later became jealous of Phil's relationship with his son Ben and began to emotionally and physically abuse him, becoming one of soap's most-hated villains. Thompson left EastEnders on 20 July 2007, after the exposure of Stella's evil ways on her wedding day led to the character's suicide. She won the "inside soap Best bitch award" for her portrayal of Stella. In 2009, Thompson appeared in the BBC One comedy series Big Top. During 2012, Thompson appeared in Love Life and Lightfields, both of which were aired on ITV. Her most recent television credits include Detectorists, Professor Branestawm, A Gert Lush Christmas, Jericho and Coronation Street (2018).

Big-screen roles include Four Weddings and a Funeral, Eat Pray Love, Emma, Dancing at Lughnasa, Gosford Park, Fat Slags, Relative Values and Morris: A Life with Bells On. Thompson appeared in Harry Potter and the Deathly Hallows in 2010, as Mafalda Hopkirk and Hermione Granger disguised as Hopkirk. Thompson starred alongside popular British comedians Alan Davies, in Jonathan Creek, and Lee Evans in So What Now? She has also appeared in Persuasion, Midsomer Murders, The Adventures of Sherlock Holmes, A Harlot's Progress, and the TV movie Magnolia. She played Miss Bartlett in Andrew Davies' 2007 adaptation of E.M. Forster's A Room with a View and also appeared in the last episode of series 4 of Doc Martin.

Recent theatre includes the role of Mrs Hardcastle in She Stoops To Conquer at the National Theatre, directed by Jamie Lloyd, and also the part of Doctor Mathilde von Zahnd in Josie Rourke's production of The Physicists at the Donmar. She played Kathy/Bev in Dominic Cooke's 2011 production of Clybourne Park at The Royal Court, which transferred to The Wyndhams. Thompson received an Olivier nomination for Best Actress. In 1996, Thompson played the role of Amy in Sam Mendes' acclaimed Donmar Warehouse revival of Company, receiving an Olivier Award nomination for her performance. She appeared as the Baker's Wife in the Donmar's revival of Into the Woods, which garnered her the 1999 Olivier Award for Best Actress in a Musical. She also played Ophelia in the Renaissance Theatre Company production of Hamlet in 1988 in Birmingham, later touring around England. That production was directed by Sir Derek Jacobi and starred her Future brother-in-law Kenneth Branagh as Hamlet, Richard Easton as Claudius and Dearbhla Molloy as Gertrude. A film documentary called Discovering Hamlet was made of the process of producing and rehearsing this play. It was released in 1990, and a DVD version was released in 2010.

Thompson is the second daughter of Actress Phyllida Law, the presenter of the first TV show broadcast on BBC Two, Play School, and actor Eric Thompson, the writer–narrator of the popular children's television series The Magic Roundabout on BBC One in the 1960s. She is the younger sister of Actress and Screenwriter Emma Thompson.

Thompson took part in Celebrity MasterChef 2014, emerging as the winner beating Jodie Kidd and Charley Boorman in the final. In 2015, Thompson's recipe book, My Family Kitchen, was published, and her first children's book, Zoo Boy, was published in 2016.