After competing in a beauty contest in 1946, the Canton, Ohio native went to Hollywood to pursue an acting career. Her first film, 1947's Captain from Castile with Tyrone Power was a hit, and Leonard Maltin writes that afterwards Peters spent the new decade playing "sexy spitfires, often in period dramas and Westerns."

Director Samuel Fuller chose Peters over Marilyn Monroe for the part of Candy in 1953's Pickup on South Street. He thought Peters had the right blend of sex appeal and the tough-talking, streetwise characteristics he was seeking, and that Monroe was too innocent looking for the role. Peters and Monroe starred together in another 1953 film noir, Niagara.

In 1957, after her divorce from her first husband, Texas oilman Stuart Cramer, Peters married Howard Hughes, shortly before he faded from public view and became an eccentric recluse. She retired from acting during the marriage. In 1971, Peters and Hughes divorced. She agreed to a lifetime alimony payment of $70,000 (USD) annually, adjusted for inflation, and she waived all claims to Hughes' estate. That same year, she married Stanley Hough, an executive with Twentieth-Century Fox.

The usually-paranoid Hughes surprised his aides when he did not insist on a confidentiality agreement from Peters as a condition of divorce; aides reported Peters was one of the few people Hughes never disparaged. Peters refused to discuss her life with Hughes, and declined several lucrative offers to do so. She would state only that she had not seen Hughes for several years before their divorce.

Peters remarried after divorcing Hughes, and returned to acting with a few roles on television.

She died of leukemia in 2000 in Carlsbad, California, two days before her 74th birthday.