Shue was born in Wilmington, Delaware, into a well-heeled and well-educated family and grew up in Bergen and Essex counties in New Jersey. Her parents divorced while she was in the fourth grade. Her father, who was active in Republican politics, once unsuccessfully ran for the U.S. Senate in New Jersey. Shue graduated Columbia High School, in Maplewood, New Jersey attended Wellesley College and Harvard College, from which she withdrew to pursue her acting career. She acted in television commercials for extra spending money. She returned to Harvard, 15 years after withdrawing, to finish her degree in government in the year 2000.

Her brother is Melrose Place actor Andrew Shue. Another brother, William, died at age 26 in a freak accident while on family vacation in 1988; as both siblings watched on helplessly, William was impaled on a tree.

In 1984, she co-starred in The Karate Kid as the onscreen girlfriend of Ralph Macchio and had a role as the teenage daughter of a military family in the short-lived series Call to Glory.

She continued her acting work with Adventures in Babysitting (which was Shue's first starring role), Cocktail, Soapdish and The Marrying Man, as well as playing the role of Jennifer Parker in the two Back to the Future sequels. Claudia Wells played Jennifer Parker in the original Back to the Future movie.

Trying to shed her girl-next-door image, Elisabeth took a chance on a low-budget, high-risk project called Leaving Las Vegas. Her portrayal of a prostitute mixed up with a suicidal alcoholic (played by Nicholas Cage) earned her an Academy Award nomination for Best Actress.

Since then, she has starred in The Saint, Deconstructing Harry, Palmetto and Hollow Man.

She is married to Davis Guggenheim director of the HBO TV series Deadwood. They have a son, Miles William, and a daughter, Stella Street.