Horrocks, the youngest of three children, was born Barbara Jane Horrocks in Rawtenstall, Lancashire, the daughter of Barbara (née Ashworth), a hospital worker, and John Horrocks, a sales representative. She attended Balladen County Primary School and later trained at the Oldham College and subsequently at the Royal Academy of Dramatic Art with Imogen Stubbs and Ralph Fiennes and began her career with the Royal Shakespeare Company. She first drew critical notice for her performance in the film Life is Sweet (1991), followed by her award-winning performance in the West End play The Rise and Fall of Little Voice in which she sang all the songs. Horrocks became a household name with the role of Bubble in Absolutely Fabulous (1992–2005), in which she also played Katy Grin in the last two seasons of the series.

While working on Road, a play directed by Jim Cartwright, Horrocks warmed up by doing singing impressions of Judy Garland, Shirley Bassey, and Ethel Merman, among others. Cartwright was so impressed with her gift for mimicry he wrote the play The Rise and Fall of Little Voice to showcase her talent. She was nominated for the Laurence Olivier Award for Best Actress for her performance in the 1992 West End production, directed by her then-boyfriend Sam Mendes. She reprised her role in the 1998 screen adaptation, Little Voice, which earned her nominations for the Golden Globe Award for Best Actress - Motion Picture Musical or Comedy, the BAFTA Award for Best Actress in a Leading Role, the Satellite Award for Best Actress - Motion Picture Musical or Comedy, the Screen Actors Guild Award for Outstanding Performance by a Female Actor in a Leading Role - Motion Picture, and the British Independent Film Award for Best Actress.

In 2000, Horrocks released the CD Further Adventures Of Little Voice, again singing in the style of her favourite divas. The recording includes duets with Ewan McGregor, Robbie Williams, and Dean Martin. Horrocks collaborated once more with Robbie Williams the following year, for a cover of the Bobby Darin song "Things" on Williams's album Swing When You're Winning.

In addition to Road and The Rise and Fall of Little Voice, Horrocks has appeared on stage in Ask for the Moon (Hampstead, 1986), A Colliers Friday Night (Greenwich, 1987), Valued Friends (Hampstead, 1989), and The Debutante Ball (Hampstead, 1989). She appeared in "Catherine Cookson's The Fifteen Streets, alongside Sean Bean and Owen Teale in 1989, Our Own Kind (Bush, 1991), Deadly Advice (Fletcher, 1993), Cabaret (Donmar Warehouse, 1994), Macbeth (Greenwich Theatre, 1995) and Absurd Person Singular (Garrick Theatre, 2007). Her last West End appearance was in Sweet Panic, the 2003 Stephen Poliakoff drama in which she portrayed a neurotic mother locked in a battle of wills with her disturbed son's psychologist. She starred in Richard Jones's critically acclaimed production of The Good Soul of Szechuan at the Young Vic in 2008 and was reunited with Jones in a new musical production of Annie Get Your Gun, which opened at the Young Vic in October 2009.

Horrocks's voiceover talents have been used on the big screen in films like Chicken Run (2000), Christmas Carol: The Movie (2001), Corpse Bride (2005), Garfield: A Tail of Two Kitties (2006) and Tinker Bell (2008) (in which she was Fairy Mary), and on radio as Fenchurch in the audio adaptation of Douglas Adams' popular science fiction series The Hitchhiker's Guide to the Galaxy for BBC Radio 4.

Horrocks's other notable television credits include Absolutely Fabulous, Victoria Wood - We'd Quite Like To Apologise, Bad Girl, Boon, Heartland, Hunting Venus, La Nonna, Leaving Home, Never Mind the Horrocks, Nightlife, Wyrd Sisters, The Foxbusters, Red Dwarf, Some Kind of Life, Suffer the Little Children, The Storyteller, The Garden, Fifi & the Flowertots, "Little Princess" (for which she is the voice of the princess) and Welcome to the Times. She was the subject of an episode of the genealogy documentary series Who Do You Think You Are? in 2006. That year she played the title role in The Amazing Mrs Pritchard, a drama about an ordinary woman who is elected prime minister. She also appeared in the 2007 Robbie the Reindeer BBC TV animations filmed in aid of Comic Relief. For 10 years, Horrocks appeared with Prunella Scales in a series of commercials for the UK supermarket chain Tesco. She narrated BBC2's television series The Speaker in April 2009.

Also in 2009, Horrocks took the lead in the BBC TV production Gracie!, a drama portraying the life of Gracie Fields during World War II and her relationship with the Italian-born director Monty Banks (played by Tom Hollander). The screenplay, written by her long-term partner Nick Vivian, once again displays Horrocks' natural ability of capturing the voice and persona of a famous entertainer.

Horrocks lives with playwright Nick Vivian in Twickenham with their children, son Dylan and daughter Molly. Horrocks is frequently seen in the audience of Strictly Come Dancing, of which she is a fan. She was in a relationship with singer Ian Dury for more than a year in the 1980s and with Sam Mendes in the 1990s.