Born in New York City to Anthony Wallace Marsciarelli (an Italian American) and Marjorie Irene Ward, who was of English and Scottish descent. Marshall attended Northwestern University and was a member of the Alpha Tau Omega fraternity, where he wrote a sports column for the college newspaper. He began as a joke writer for such comedians as Joey Bishop and Phil Foster, then he became a writer for the Tonight Show with Jack Paar. In 1961 he moved to Hollywood, where he teamed up with Jerry Belson as a writer for television. The pair worked on The Dick Van Dyke Show, The Danny Thomas Show, and The Lucy Show. They then adapted Neil Simon's play The Odd Couple for television. On his own, Marshall created Happy Days, Laverne and Shirley (starring his sister Penny), and Mork & Mindy.

In 1984 Marshall had a movie hit as the writer of The Flamingo Kid. He went on to direct Nothing in Common, Overboard, Beaches, Pretty Woman, Frankie and Johnny, and Exit to Eden, among others.

Marshall is also a fine comic actor who often plays wisecracking guys who tell it like it is, having appeared in the television series Murphy Brown and in such movies as Goldfinger (uncredited), Grand Theft Auto, Lost in America, Jumpin' Jack Flash, Runaway Bride, Orange County, and A League of Their Own, directed by his sister. His most recent acting gig was as the father of the title character in Chicken Little. He also acts in stage productions.

He has a star on the Hollywood Walk of Fame.