Born Sophia Kosow, an only child to Victor and Rebecca Kosow, a Russian-born Jewish couple in The Bronx, New York, Sidney became an actress at the age of 15 as a way of overcoming shyness, using her stepfather's surname as her professional surname. As a student of the Theater Guild's School for Acting, Sidney appeared in several of their productions during the 1920s and earned praise from theater critics. In 1926 she was seen by a Hollywood talent scout and made her first film appearance later that year.

During the Depression, Sidney appeared in a string of films, often playing the girlfriend or the sister of a gangster. She appeared opposite such heavyweight screen idols as Joel McCrea, Fredric March and Cary Grant. Among her films from this period were: An American Tragedy and Street Scene (both 1931), Sabotage and The Trail of the Lonesome Pine (both 1936), You Only Live Once and Dead End (both 1937).

Her career diminished somewhat during the early 1940s and a comeback later in the decade failed to renew her popularity.

In 1952 she played the role of Fantine in Les Misérables, and her performance was widely praised and allowed her opportunities to develop as a character actress. She received an Academy Award for Best Supporting Actress nomination for her role in Summer Wishes, Winter Dreams (1973), and she was visibly furious at losing to the 10-year-old Tatum O'Neal.

As an elderly woman she continued to play supporting roles, and was identifiable by her husky voice, the result of a lifetime cigarette smoking habit. She was the formidable Miss Coral in the film version of I Never Promised You a Rose Garden. She played Aidan Quinn's grandmother in the television production of An Early Frost for which she won a Golden Globe Award, and she also played key roles in Beetlejuice (directed by longtime Sidney fan Tim Burton) and Used People (which co-starred Jessica Tandy, Marcello Mastroianni, Marcia Gay Harden, Kathy Bates and Shirley MacLaine).

Her swan song was in another film by Burton, Mars Attacks!, in which she played a senile old lady whose Slim Whitman music stops an alien invasion from Mars because that particular music makes the Martians' heads explode.

On TV, she appeared as the imperious mother of Gordon Jump on the pilot episode of WKRP in Cincinnati; as the troubled grandmother of Melanie Mayron in the comedy-drama Thirtysomething and, finally, as the crotchety travel clerk on the short-lived late-1990s revival of Fantasy Island with Malcolm McDowell, Fyvush Finkel and Madchen Amick.

She was married three times, including to actor and acting teacher Luther Adler from 1938 until 1947, by whom she had her only child, a son, Jacob, who predeceased her.

She died from throat cancer in New York City at the age of 88, after a career of more than 70 years.

Sylvia Sidney has a star on the Hollywood Walk of Fame for her contribution to Motion Pictures at 6245 Hollywood Boulevard.