Olivia Thirlby was born in New York City, to an advertising executive mother and a contractor father. She was raised in Manhattan's East Village, attending school at Friends Seminary in the city's Gramercy neighborhood, where she graduated in a class of 57 students.
She also attended French Woods Festival of the Performing Arts in upstate New York. She took classes at the American Globe Theatre, and briefly at the Royal Academy of Dramatic Art in London where she completed a stage combat course with the British Academy of Stage and Screen Combat (BASSC).

While still in high school, Thirlby was offered a role in The Secret. In 2006, she made her film debut in United 93 and her television debut in Kidnapped.

In 2007 she starred as Leah, the best friend of the title character in the critically acclaimed Juno. Around this time, she and her Juno costar Ellen Page were slated to star as the respective title characters of Jack & Diane. The film is a tale of two young women who fall in love, the heat of the romance unlocking lycanthropy in Thirlby's character, Jack. Both dropped out of the film before production, and the cast was replaced numerous times over. As of 2010, Jack & Diane has entered production with an entirely new cast and no involvement from Thirlby or Page.

In the Sundance Audience Award-winning film The Wackness, a mid-1990s period piece, she plays Stephanie, a marijuana-smoking "popular girl" from New York City. Thirlby stars opposite Josh Peck, who plays a drug dealer. Ben Kingsley stars as her stepfather. The film was released in the U.S. on July 3, 2008.

Thirlby was cast in the Judd Apatow-produced, David Gordon Green-directed stoner comedy, Pineapple Express, as Seth Rogen's girlfriend, but was replaced by actress Amber Heard after rehearsing for the film. She will however reunite with Gordon Green on the animated TV pilot Good Vibes.
She made her stage debut in Farragut North, a play by Beau Willimon at the Atlantic Theater Company in New York City