Ebersole was born in Chicago, Illinois, and graduated from MacMurray College in Jacksonville, Illinois. After appearances on Ryan's Hope in 1977 and 1980, she got her first big role as part of the cast of Saturday Night Live, and after this starred for several seasons on One Life to Live and Valerie.

Her film roles to date have included Mac and Me (1988), My Girl 2 (1994), Richie Rich (1994), 'Til There Was You (1997), My Favorite Martian (1999), and as the diva Katerina Cavalieri in Miloš Forman's Amadeus (1984).

Ebersole has also been part of the cast of several failed television series, including Rachel Gunn, R.N. (1992) in which she played the title role, alongside Will & Grace's Megan Mullally. She has also had notable guest roles in shows such as Will & Grace, Just Shoot Me, Murphy Brown and Ally McBeal.

Ebersole has found her biggest fame on Broadway. Her most noted roles have included an appearance in Gore Vidal's The Best Man (2000), Millicent Jordan in Dinner at Eight (2002) (for which she was nominated for a Tony Award), M'Lynn in Steel Magnolias (2005), and the role for which she won the Tony Award for Best Leading Actress in a Musical - Dorothy Brock in the 2001 revival of 42nd Street. In February 2006, Ebersole is slated to play Edie Beale/Edith Bouvier Beale in Grey Gardens, a new musical based upon the movie of the same name.

Ebersole has been married twice, to Peter Bergman, and to her present spouse Bill Moloney, with whom she has adopted three children. She is also the aunt of Janel Moloney.