Born in Balham, Surrey, she was the only child of Mr. and Mrs. William Rutherford Benn. Her father suffered from mental illness for many years. He was also known as William Rutherford. On 4 March 1883 he murdered his own father, the Reverend Julius Benn, by battering him to death with a chamber pot. In 1904 he was re-admitted to Broadmoor (), presumably for the remainder of his life.

She made her stage debut in 1925 at the Old Vic. However, her appearance was such that romantic heroines were almost out of the question, and she soon established her name in comedy, appearing in many of the most successful British films of the mid-20th century. In most of these films, she had originally played the role on stage. She married the actor Stringer Davis in 1945 and they often appeared together in films.

In 1961, she first played the film role with which she was most often associated in later life, that of Miss Marple in a series of films based on the novels of Agatha Christie. Rutherford took great umbrage when she learned that Christie had expressed concerns about her (Rutherford's) girth, as Miss Marple is usually portrayed and played as a trim, tallish spinster.

Rutherford won a Best Supporting Actress Oscar for The VIPs (1963), as the absent-minded Duchess of Brighton, opposite Elizabeth Taylor and Richard Burton, but she did not appear in person at the telecast to receive the award.

She was created an Officer of the British Empire (OBE) in 1961, and raised to Dame Commander (DBE) in 1967.

Rutherford was a cousin of the radical left-wing Labour politician Tony Benn.

She suffered from Alzheimer's disease at the end of her life, and died 11 days after her 80th birthday, of complications following hip surgery.

She is buried along with her husband, Stringer Davis, in the graveyard of St. James Church, Gerrards Cross, Buckinghamshire.