Born in Göttingen, Germany, daughter of Thyra A. (née Leisner) and Oskar Frank Leonard Hagen, Hagen and her family emigrated to the United States in 1924, when her father received a position at Cornell University. She was raised in Madison, Wisconsin. She appeared in productions of the University of Wisconsin High School and in summer stock productions of the Wisconsin Players. She studied acting briefly at the Royal Academy of Dramatic Art in 1936. After spending one semester at the University of Wisconsin, where her father was the head of the department of art history, she left for New York City in 1937. Her first professional role was as Ophelia opposite Eva Le Gallienne in the title role of Hamlet in Dennis, Massachusetts in 1937.

Hagen considered the period between 1938 and 1947 as "the transitional years of my career, during which I lost my way and a love of acting until I finally regained it to begin a true life in the theater."

Uta Hagen was married to José Ferrer from 1938 until 1948. They had one child together, their daughter Leticia (born October 15, 1940). They divorced partly because of Hagen's long-concealed interracial affair with Paul Robeson, their co-star in Othello. Hagen married Herbert Berghof on January 25, 1957, a union that lasted until his death in 1990.

She played George Bernard Shaw's Saint Joan (1951) on Broadway, and Desdemona in a production which toured and played Broadway, featuring Paul Robeson as Shakespeare's Othello and her then-husband Jose Ferrer as Iago. She took over the role of Blanche DuBois in A Streetcar Named Desire for the national tour, which was directed not by Elia Kazan who had directed the Broadway production but by Harold Clurman. Hagen had had a revelatory experience when she first worked with Clurman in 1947. In Respect for Acting, she credited her discoveries with Clurman as the springboard for what she would later explore with her husband Herbert Berghof: "how to find a true technique of acting, how to make a character flow through me". She played Blanche (on the road and on Broadway) opposite at least four different Stanley Kowalskis, including Anthony Quinn and Marlon Brando. Through interviews with her and contemporary criticism, the report is that Hagen's Blanche refocused the audience's sympathies with Blanche rather than with Stanley (where the Brando/Kazan production had leaned). Primarily noted for stage roles, Hagen won her first Tony Award in 1951 for her performance as the self-sacrificing wife Georgie in Clifford Odets' The Country Girl. She won again in 1963 for originating the role of the "I-wear-the-pants-in-this-family-because-somebody's-got-to" Martha in Edward Albee's Who's Afraid of Virginia Woolf?. (An original cast recording was made of this show.) In 1981 she was elected to the American Theatre Hall of Fame and in 1999 received a "Special Lifetime Achievement Tony Award".

She taught at HB Studio, a well-known New York City acting school on a cobblestone, tree-shaded street in the West Village. She began there in 1947, and married its co-founder, Herbert Berghof, on January 25, 1957. Later in her life, Hagen undertook a return to the stage, earning accolades for leading roles in Mrs. Warren's Profession (1985), Collected Stories, and Mrs. Klein. After Berghof's death in 1990 she became the school's chairperson.

Although she appeared in some movies, because of the Hollywood blacklist she had more limited output in film and on television, not making her cinematic debut until 1972. She would later comment about being blacklisted, "that fact kept me pure."

She also wrote Respect for Acting (1973) and A Challenge for the Actor (1991), which advocate realistic acting (as opposed to pre-determined "formalistic" acting). In her mode of realism, the actor puts his own psyche to use in finding identification with the role," trusting that a form will result. In Respect for Acting, Hagen credited Director Harold Clurman with a turn-around in her perspective on acting:

Respect for Acting is used as a textbook for many college acting classes. She also wrote a 1976 cookbook, Love for Cooking. In 2002, she was awarded the National Medal of the Arts by President George W. Bush at a ceremony held at the White House.

She was elected to the American Theatre Hall of Fame in 1981. She twice won the Tony Award for Best Actress in a Play and received a Special Tony Award for Lifetime Achievement in 1999.

In 2001, Hagen agreed to be filmed giving master classes in NYC, LA, Toronto and Chicago by Karen Ludwig and Pennie du Pont, who released the video entitled Uta Hagen's Acting Class, a two-part set that captures her master classes. The video has been thoroughly studied and is now taught in many acting classes.

Harvey Korman talks about studying under her during his Archive of American Television interview in 2004. David Hyde Pierce worked with Hagen in the Richard Alfieri play Six Dance Lessons in Six Weeks, at the Geffen Playhouse in 2001. Hyde Pierce spoke at her 2004 memorial at Manhattan's Majestic Theater.