Potter was born in Cleveland, Ohio to an Irish American Catholic family; her father was an inventor and her mother worked as a secretary. During her childhood, she was a part of the St. Jerome Parish in Cleveland, and attended the local elementary school, as well as Villa Angela Catholic School for Girls, before graduating from Euclid High School.

Potter says that she had wanted to be an actress since her childhood. She almost became a nun, but for the fact that she was married and pregnant at the age of nineteen.

At the age of twelve, Potter started modeling and appearing in commercials in Chicago and Miami, before deciding to pursue an acting career. Her first role was on the daytime soap opera, The Young and the Restless. She has since appeared in several feature films, including Con Air (playing the wife of Nicolas Cage's character) and starring opposite Robin Williams in Patch Adams. In 2001, she had two major roles, co-starring with Freddie Prinze Jr. in Head Over Heels, and with Morgan Freeman in the thriller Along Came a Spider. She was a series regular on Boston Legal but left after the first season.

Adam Duritz of the Counting Crows allegedly wrote the song Mrs. Potter's Lullaby about her after watching Patch Adams.

Potter was married to Tom Potter, with whom she has two sons, from 1990 to 1998. She married Daniel Christopher Allison, an orthopedic surgeon, in June of 2005. Potter and Allison welcomed their first child, a daughter named Molly Brigid Allison, on August 3, 2005.

Potter was named "Best Movie Star Loyal to Cleveland" by ClevelandScene.com for her insistence on keeping her family in the Ohio city even after Hollywood success. "It's a great place to raise kids. I had a very happy childhood there, growing up on a special street where everyone knew everyone," said Potter in an interview with Maxim magazine in March 2001.