Born in Cleveland, Ohio, Hamilton was a schoolteacher who turned to acting, making her screen debut in 1933 in Zoo in Budapest. She appeared in such films as These Three (1936), Saratoga, You Only Live Once and Nothing Sacred (all 1937), The Adventures of Tom Sawyer (1938), My Little Chickadee (1940), and State of the Union (1948).

In 1939, she played the role of the Wicked Witch of the West opposite Judy Garland's Dorothy in The Wizard of Oz and created not only her most famous role, but one of the screen's most memorable villains. Hamilton was chosen when the more traditionally attractive Gale Sondergaard refused to wear makeup designed to make her appear ugly. During the actual filming, Hamilton suffered severe burns when the trapdoor elevator she was riding on the soundstage malfunctioned during her fiery exit from Munchkinland. Hamilton had to recuperate in a hospital and at home for six weeks after the accident before returning to the set to complete her work on the now-classic film, and refused to have anything to do with fire during the remaining filming. Whatever ill she may have felt toward the role quickly disintegrated; later on in life she would comment on the role of the witch in a light-hearted fashion.

Hamilton appeared regularly in supporting roles in films until the early 1950s, and sporadically thereafter. She co-starred opposite Buster Keaton and Richard Cromwell, in 1940's forgettable spoof of the long-running local melodrama, The Drunkard, entitled The Villain Still Pursued Her. Later in the decade, she was in a now-forgotten film noir from one of the "poverty row" studios, entitled Bungalow 13 (1948), in which she again co-starred opposite Cromwell, though that film did nothing for either of their careers.

During the 1960s and 1970s Hamilton appeared regularly on television. For example, she did a stint as one of the What's My Line? Mystery Guests on the popular Sunday Night CBS-TV program. Years later, she had a small role in the made-for-TV film The Night Strangler (1973). She continued acting regularly until 1982. Her last role was a guest appearance as a veteran journalist on an episode of Lou Grant.

Hamilton was often asked about her experiences on the set of The Wizard of Oz. Hamilton said she sometimes worried about the effect that her monstrous film role had on children. In real life Hamilton dearly loved children and gave to charities benefitting them. She often remarked about children coming up to her and asking her why she had been so mean to poor Dorothy. She appeared on an episode of Mister Rogers' Neighborhood, where she explained to children that she was only playing a role.

Hamilton was married briefly in the 1930s and had one son, whom she raised on her own.

Throughout the 1970s, Hamilton lived in New York City's Gramercy Park neighborhood and appeared on local TV ads for organizations promoting the welfare of companion animals. Her most visible appearances during this period were as general store owner Cora, in a national series of television commercials for Maxwell House coffee.

She eventually moved to Salisbury, Connecticut and died there in 1985 from a heart attack at the age of 82.