Walters was born as Julia Mary Walters in Smethwick, in Birmingham, the daughter of Mary Bridget (née O'Brien), a postal clerk of Irish Catholic extraction, and Thomas Walters, a builder and decorator. Walters attended Holly Lodge Grammar School for Girls on Holly Lane in Smethwick, although was asked to leave at the end of her lower sixth due to her 'high jinks'.

She trained as a nurse at the age of 18 at the Queen Elizabeth Hospital, Birmingham after working for a year. She fell madly in love with her first proper boyfriend who then left to study Sociology in Manchester. Deciding to give up her nursing career to become an actress and live with her boyfriend in Manchester, she studied English and Drama at Manchester Polytechnic (now Manchester Metropolitan University) with Pete Postlethwaite and pursuing a performance career.

In an interview with Alison Oddey, Walters said about her early schooling: "I was never going to be academic, so [my mother] suggested that I try teaching or nursing [...] I'd been asked to leave school, so I thought I'd better do it."

Walters first achieved fame as the occasional partner of comedienne Victoria Wood, whom she had met in Manchester. The two first worked together in the 1978 theatre revue In At The Death, followed by the television adaptation of Wood's play Talent.

They went on to appear in their own Granada Television series, Wood and Walters, in 1982. They have continued to perform together frequently over the years. The Bafta-winning BBC follow-up, Victoria Wood As Seen On TV, featured one of Walters' best-known roles, Mrs. Overall in Wood's spoof soap opera, Acorn Antiques (she later appeared in the musical version, and received an Olivier Award nomination for her efforts). She also appeared as Petula Gordino in Wood's sitcom dinnerladies.

Before making her London stage debut in Educating Rita, Walters had worked in regional theatre (including the Everyman Theatre, Liverpool), stand-up comedy and cabaret. Her first serious acting role on TV was in the classic Boys from the Blackstuff in 1982, and she broke into films with her Academy Award-nominated, BAFTA Best Actress award-winning and Golden Globe Award Best Actress - Motion Picture Musical/Comedy award-winning performance opposite Michael Caine in Educating Rita (1983), a role she had created on the West End stage. In 1991 she starred opposite Liza Minnelli in "Stepping Out" and had a one-off television special, Julie Walters and Friends, which featured writing contributions from Victoria Wood and Alan Bennett.

Walters has won numerous other acting awards, and was appointed Officer of the Order of the British Empire (OBE) in 1999 and Commander of the Order of the British Empire (CBE) in the 2008 New Year Honours for her services to drama. In 2001, she won a Laurence Olivier Award for her performance in Arthur Miller's All My Sons.

She received her second Oscar nomination and won a BAFTA for her supporting role as the ballet teacher in Billy Elliot (2000). She often plays older women, and, in 2002, she won the BAFTA Television Best Actress award for her performance as Paul Reiser's mother in My Beautiful Son.

Walters also played Molly Weasley in Harry Potter and the Sorcerer's Stone (2001), Harry Potter and the Chamber of Secrets (2002), Harry Potter and the Prisoner of Azkaban (2004) and Harry Potter and the Order of the Phoenix (2007).

In 2003, Walters starred as a widow determined to make some good come out of her husband's death from cancer in Calendar Girls, which also starred Helen Mirren and Ciarán Hinds; in 2005, Walters again starred as inspirational real-life figure Marie Stubbs in the ITV1 drama Head of the Class.

In 2006, she came fourth in ITV's poll of the public's 50 Greatest Stars, coming four placed above frequent co-star Victoria Wood. Also in 2006, she played the main role in an ITV drama Driving Lessons alongside Rupert Grint (who played her son Ron in the Harry Potter series), and later a leading role in the BBC's adaptation of Phillip Pullman's novel The Ruby in the Smoke. In the summer of 2006, she published her first novel, Maggie's Tree.

Walters starred in ASDA Christmas 2007 TV advertising campaign. She also currently appears alongside Patrick Stewart in UK Nintendo DS Brain Training television advertisements, and in a recent Smoke Alarm Public Information Film. In summer 2008, Walters appeared in the movie version of Mamma Mia!, marking her second high profile musical, after Acorn Antiques.

Walters also played Mary Whitehouse in the BBC Drama Filth: The Mary Whitehouse Story, an adaptation of the real-life story of Mrs. Whitehouse, who campaigned for "taste and decency on television". Julie commented saying “I am very excited to be playing Mary Whitehouse, and to be looking at the time when she attacked the BBC and started to make her name.”