Steadman was born in Liverpool, Merseyside, England, the daughter of Marjorie (née Evans) and George Percival Steadman, who worked for an electronics firm as a production controller. She moved to London in her twenties and enrolled in the East 15 Acting School, where she met Mike Leigh. They married in 1973 and had two sons, Toby in 1979 and Leo in 1981. They separated in 1995 and divorced in 2001. Her present partner is Michael Elwyn and she currently lives in Highgate, London.

She created the role of the monstrous Beverly in Mike Leigh's Abigail's Party, which she reprised with the original cast on television. Steadman also appeared in The Rise and Fall of Little Voice, The Prime of Miss Jean Brodie, Cat on a Hot Tin Roof, Entertaining Mr Sloane, Hotel Paradiso, and others in locations as diverse as the Royal Court, the Theatre Royal,[disambiguation needed] the Old Vic, the Hampstead Theatre, the Nottingham Playhouse, the Everyman Liverpool and the National Theatre. She starred as Elmire in the 1983 RSC production of Molière's Tartuffe, which was adapted for BBC television.[citation needed] In 2010, Steadman was cast as Madame Arcati in a revival of Noël Coward's Blithe Spirit, which is scheduled for a national tour from November 2010 to March 2011.

She has appeared in many films, including Shirley Valentine, The Adventures Of Baron Munchausen, Confetti, Clockwise, P'Tang Yang Kipperbang, Wilt and A Private Function, although she is perhaps most noted for her work in films directed by Leigh such as Life Is Sweet and Topsy Turvy. She appeared opposite James Bolam in the television movie The Missing Postman.

Her television work includes Fat Friends as Betty, Grumpy Old Women, Stressed Eric, Selling Hitler, Let Them Eat Cake, The Singing Detective, No Bananas, The Caucasian Chalk Circle, Adrian Mole: The Cappuccino Years as Pauline Mole and Pride and Prejudice as Mrs. Bennet.

Television productions directed by Leigh in which she has appeared include Nuts in May, and most famously Abigail's Party. She also appeared in the BBC comedy The Worst Week of My Life. From 2007 to 2010 she appeared in the BBC comedy Gavin & Stacey as Pamela. She was also in Fanny Hill on BBC Four in 2007.

Steadman starred with Myra Frances in Girl, a 1974 BBC play, containing the first lesbian kiss[citation needed] on British television.

On radio, Steadman's talent for mimicry and character voices was given full rein in shows such as Week Ending, Castle's on the Air and The Worst Show on the Wireless, in both the latter of which she played the over-protective mother to Eli Woods' long-suffering Bunty/Precious. From 1982 to 1984 she joined Eli Woods and Eddie Braben (Morecambe and Wise's scriptwriter) in the UK radio show The Show with No Name for the 13 episodes, in what can be described as an updated version of Round the Horne comedy sketch show. More recently, since 2002, she has starred as Mrs Naughtie in the series Hamish and Dougal.

Yvonne Bryceland (1985) · Lindsay Duncan (1986) · Judi Dench (1987) · Fiona Shaw (1990) · Kathryn Hunter (1991) · Juliet Stevenson (1992) · Alison Steadman (1993) · Fiona Shaw (1994) · Clare Higgins (1995) · Judi Dench (1996) · Janet McTeer (1997) · Zoë Wanamaker (1998) · Eileen Atkins (1999) · Janie Dee (2000) · Julie Walters (2001) · Lindsay Duncan (2002) · Clare Higgins (2003) · Eileen Atkins (2004) · Clare Higgins (2005) · Eve Best (2006) · Tamsin Greig (2007) · Kristin Scott Thomas (2008) · Margaret Tyzack (2009) · Rachel Weisz (2010)