Ward was born at Chipping Norton, Oxfordshire, granddaughter of William Ward, 3rd Earl of Dudley and of the cricketer Giles Baring. She is also the great-granddaughter of William Ward, 2nd Earl of Dudley, Governor-General of Australia 1908–11, and sister of environmental campaigner and former actress Tracy Louise Ward.

She attended the Byam Shaw School of Art in London before leaving at 16 to become a top fashion model. She briefly dated David Kennedy, son of Robert F Kennedy. In 1983 she was voted one of the 10 most beautiful women in the United States.

She became well known when she starred opposite Richard Chamberlain as the lead role portraying Meggie Cleary in the television mini-series The Thorn Birds. She also starred in the films Sharky's Machine with Burt Reynolds, Dead Men Don't Wear Plaid with Steve Martin and Against All Odds with Jeff Bridges.

Ward then disappeared from film for three years to study acting. She reappeared in 1987 playing opposite her husband, Bryan Brown (whom she met on the set of The Thorn Birds), in The Good Wife. Married since 1983, they have three children: Rose (Rosie), Matilda (who has followed her parents into the acting profession), and Joe.

In 2001, Ward won the Australian Film Institute Award for Best Short Fiction Film for The Big House. In 2003, a portrait of Rachel Ward by artist Jan Williamson won the Packing Room award at the Archibald Prize competition.

In 2005, Ward was made a Member of the Order of Australia "for service to raising awareness of social justice through lobbying, mentoring and advocacy for the rights of disadvantaged and at-risk young people, and support for the Australian film and television industry."

The Australian Film Commission provides grants to stimulate film production in Australia. The funding is required to be repaid from first cash flow after release. Bryan Brown and Rachel Ward have publicly criticised the NSW Government for failing to help finance their next project.

But documents show the couple's New Town Films has yet to pay back Australian Film Commission grants for their 2003 short film Martha's New Coat, which received at least $18,250 in 2002. The 50-minute production was directed by Ward, produced by Brown and their daughter Matilda made her film debut in it.

In 2007, Ward returned to television, headlining the new ABC drama Rain Shadow. She played a country veterinarian named Kate McDonald, a free spirit who confronts personal and professional obstacles in a rural, drought-affected town.