Arquette was born in New York City to a Jewish mother and a father of partially-French descent. Her grandfather, Cliff Arquette, played "Charley Weaver" on . She is the sister of actors Patricia Arquette, David Arquette, and Alexis Arquette, and the sister-in-law of Courteney Cox Arquette of fame.

Arquette followed her family's profession and began acting while still a child. When she was 11 years old, her parents moved to a commune in Virginia. Arquette did not do well at school. At the age of 14 she went to Los Angeles, California, wanting to become a film star.

In Hollywood, she had her first roles playing teens with troubles. A few years later she started to act in mature roles. Besides cinema movies, Arquette appeared from the beginning of her career in television films. In 1982, she earned an Emmy Award nomination for the TV film . Thereafter, she played in many cinema movies and TV films and has worked with many of the most acclaimed film directors of the last twenty years.

Arquette's first starring role was in John Sayles's was buried by the studio and for a time she quit Hollywood to work in Europe.

In 1989, Martin Scorsese offered her a part in . Since then, Arquette has appeared, with few exceptions, in one or in several movies each year, some of them of notable interest, like

Arquette has always been torn between work and family. Her dedication to acting has broken several relationships. The first was her boyfriend, Steve Porcaro, member of the rock band Toto (whose international hit "Rosanna" is named after her). Her marriage in 1986 to composer James Newton Howard ended in the same way. The reconciliation with an old love of Arquette, English pop and rock star Peter Gabriel, proved also to be impossible (but musically fruitful, inspiring Gabriel to write the hit song "In Your Eyes" about her). At that time, Arquette's parents divorced. Later her mother developed breast cancer. Deeply hurt, Arquette married restauranteur Jon Sidel in 1993. One year later their daughter Zoe Blue was born. Arquette went on working intensively, being often away from home. The tensions this created, and the death of her mother, led the couple to divorce.

More recently, Arquette found energies to spend time with her daughter and to become a breast cancer advocate, while continuing with her work, now also as a director. In 2002 she released the critically acclaimed documentary film . In the film Arquette interviews prominent and respected actresses (mostly between the ages of 30 and 60) in an attempt to find out whether it was practical for a working actress to successfully maintain a family.