Azmi was born into the illustrious, academic family of Kaifi Azmi, the famed poet and lyricist, and Shaukat Azmi, who were both veterans of the Indian People’s Theatre Association (IPTA). She studied at Queen Mary School in Bombay and then got her degree from St. Xavier’s College. She then pursued a course in acting at the Film and Television Institute of India (FTII). She made her acting debut with Shyam Benegal’s Ankur (1974) which was also the directorial debut of Benegal. The film was a major critical success and it won Azmi the National Award for Best Actress. Since then she has made a name for herself as one of the most powerful actresses of her time. She went on to appear in a number of critically and commercially successful films. She has played pivotal roles in many women-oriented films, thus making her an icon of empowerment. With work both in mainstream cinema and off-beat, art house films, she is a prolific actress, with great dedication to her craft. She was also one of the most well known names of Parallel Cinema, a Bengali film movement that was characterised by realism and serious themes.

Azmi’s notable films include Nishant (1975), Shatranj Ke Khiladi (1977), Khandhar (1984), Genesis (1986), Albert Pinto Ko Gussa Kyon Aata Hai (1980), Sparsh (1980), Disha (1990), and Arth(1982). She also appeared in mainstream hits like Amar Akbar Anthony (1977), Parvarish (1977) and Jwalamukhi (2000). Azmi also made herself known as an internationally acclaimed actor, with her performance in the American productions Madame Sosatzka (1988) and City of Joy (1992).

In the 2000s, she appeared in a wide variety of films, performing in a number of unconventional roles, such as Makdee (2002), 15 Park Avenue (2005), Umrao Jaan (2006), Honeymoon Travels Pvt. Ltd. (2007), Loins of Punjab Presents (2007), It's a Wonderful Afterlife (2010), Midnight's Children (2012), and Matru Ki Bijlee Ka Mandola (2012). She recently appeared in the films Neerja (2016) and Chalk N Duster (2016).

Azmi has also established herself as a social activist and has campaigned for several causes including supporting the girl child and HIV/AIDS awareness. She also vehemently opposes communalism and participated in a communal harmony march in 1989.

With five National Awards in her name, for the films Ankur (1975), Arth (1983), Khandhar (1984), Paar (1985), and Godmother (1999), and four Filmfare Awards for Swami (1977), Arth (1983), Bhavna (1984), and the Filmfare Lifetime Achievement Award in 2006, Azmi has truly established herself as a formidable figure in Indian cinema.