She was born Edith Holm Sondergaard in Litchfield, Minnesota to Danish-American parents, Hans and Christin (Holm) Sondergaard. She studied acting at the Minneapolis School of Dramatic Arts before joining the John Keller Shakespeare Company. She later toured North America in productions of Hamlet, Julius Caesar, The Merchant of Venice, and Macbeth. Her younger sister Hester Sondergaard was also an actress.
Sondergaard made her first film appearance in Anthony Adverse (1936) as "Faith Paleologue" and became the first recipient of the Academy Award for Best Supporting Actress for this performance. Her career as an actress flourished during the 1930s, and included a role opposite Paul Muni in The Life of Emile Zola (1937).
During pre-production of MGM's classic The Wizard of Oz (1939), an early idea was to have the Wicked Witch of the West portrayed as a slinky, glamorous villainess in a black sequined costume, inspired by the Wicked Queen in Walt Disney's Snow White and the Seven Dwarfs (1937). Sondergaard was originally cast as the witch in "Oz" and was photographed for two wardrobe tests, both of which survive. One was as a glamorous wicked witch, and another as a conventionally ugly wicked witch. After the decision was made to have an ugly wicked witch, Sondergaard, reluctant to wear the disfiguring makeup and fearing it could damage her career, withdrew from the role, and it went to veteran character actress Margaret Hamilton. Sondergaard was, however, cast as the sultry and slinky Tylette (a magically humanized, but devious, cat) in 1940s The Blue Bird — Fox's answer to Oz.
In 1940, she played the role of the exotic and sinister wife in The Letter, supporting Bette Davis. She received a second Academy Award nomination as Best Supporting Actress for her role as the King's principal wife in Anna and the King of Siam in 1946.
Sondergaard was first married in 1922 to actor Neill O'Malley; they divorced in 1930. On 15 May 1930, in Philadelphia, Pennsylvania, she married her second husband, Herbert Biberman, a theater director then associated with the Theatre Guild Acting Company; he became a film director and died in 1971. They had two children, Daniel Hans Biberman and Mrs. Joan Campos.
Sondergaard's career suffered irreparable damage during the Red Scare of the early 1950s, when her husband was accused of being a communist and named as one of the Hollywood Ten. (In the 2000 movie One of the Hollywood Ten, Sondergaard was portrayed by actress Greta Scacchi while Jeff Goldblum was cast as Biberman.) With her career stalled, she supported her husband during the production of Salt of the Earth (1954).
Highly controversial when it was made, and not a commercial success, its artistic and cultural merit was recognized in 1992 when the National Film Preservation Board selected it for preservation in the National Film Registry. One of the Hollywood Ten (2000) chronicled Sondergaard's relationship with Biberman and her role in the making of Salt of the Earth. The Bibermans sold their home in Hollywood shortly after they completed Salt of the Earth, and moved to New York where Sondergaard was able to work in theatre.
Sondergaard made a few more film and television appearances, before retiring. She died from cerebrovascular thrombosis in Woodland Hills, California at the age of 86.