She was born Simone-Henriette-Charlotte Kaminker in Wiesbaden, Germany to Andre and Georgette (Signoret) Kaminker. She was the oldest child of three, with two younger brothers. Her father, a linguist who later worked in the United Nations, was a French-born Jewish army officer, who brought the family to Neuilly on the outskirts of Paris. Signoret grew up in Paris in an intellectual atmosphere and studied the English language in school, earning a teaching certificate. She tutored in English and Latin and briefly worked part-time as a typist for a French collaborationist newspaper, Le Nouveau Temps, run by Jean Luchaire.

During the German occupation of France, Signoret formed close bonds with an artistic group of writers and actors who met at a cafe in the Saint-Germain-des-Prés quarter, Café de Flore. By this time, she had developed an interest in acting and was encouraged by her friends, including her lover, Daniel Gélin, to follow her ambition. In 1942, she began appearing in bit parts and was able to earn enough money to support her mother and two brothers as her father, who was Jewish and a French patriot, had fled the country in 1940 to join General DeGaulle in Britain. She took her mother's maiden name for the screen to help hide her Jewish roots.

Signoret's sensual features and earthy nature led to type-casting and she was often seen in prostitute roles. She won considerable attention in La Ronde (1950), a film which was banned briefly in New York state as being immoral. She won further raves, including an acting award from the British Film Academy, for her portrayal of yet another prostiute in Jacque Becker's Casque d'Or (1951). She went on to appear in many notable films in France during the 1950s including Therese Raquin (1953), Les Diaboliques (1954), and The Crucible (1957).

In 1958, Signoret went to England to film Room at the Top (1959), which won her numerous awards including the Academy Award for Best Actress. She was the first woman to win the award appearing in a foreign film. She was offered films in Hollywood but turned them down and continued to work in France and England. She did return to America for Ship of Fools (1965) which earned her another Oscar nomination and she went on to appear in several Hollywood films before returning to France in 1969.

In her later years, she was often criticized for gaining weight and letting her looks go but Signoret, who was never concerned with glamour, ignored the insults and continued giving finely etched performances. She won more acclaim for her portrayal of a weary madam in Madame Rosa (1977) and as an unmarried sister who unknowingly falls in love with her paralyzed brother via anonymous correspondence in I Sent a Letter to my Love (1980).

Her memoirs, Nostalgia Isn't What It Used To Be, were published in 1978. She also wrote a novel, Adieu Volodya, published in 1985, the year of her death.

First married to the filmmaker Yves Allégret from 1947 to 1949, with whom she had a daughter Catherine Allégret, herself an actress. Her second marriage was to the Italian-born actor Yves Montand in 1950, a union which lasted until her death.

She died of pancreatic cancer in Auteuil-Anthouillet, France; and is buried in Le Père Lachaise Cemetery in Paris.

The late American singer, pianist and composer Nina Simone took her stage name from Signoret.