Phillips graduated from West Virginia University, earning a B.A. in 1974, and later graduated from the Iowa Writers' Workshop at the University of Iowa.
During the mid-1970s, she left West Virginia for California, embarking on a cross-country trip that would lead to numerous jobs, experiences, and encounters that would greatly affect her fiction, with its focus on lonely, lost souls and struggling survivors. In 1976, Truck Press published her first short story collection Sweethearts, for which Phillips earned a Pushcart Prize and the Coordinating Council of Literary Magazines Fels Award.
Sweethearts was followed in 1978 by a second small-press collection, Counting, issued by Vehicle Editions. Counting earned Phillips greater recognition and the St. Lawrence Award. Her next collection, Black Tickets, published by Delacorte/Seymour Lawrence in 1979, was her first commercial success and brought her national attention as a talented and important writer. Black Tickets contained three types of stories: one page fictions, inner soliloquies, and family dramas. These stories focused on her characters' loneliness, alienation, and unsuccessful searches for happiness.
Five years after Black Tickets, Phillips published her first novel, Machine Dreams, a chronicle of the Hampson family from World War II to the Vietnam War. Phillips followed Machine Dreams with Fast Lanes, a 1988 collection of ten stories, all first-person narratives.
In 1994, Phillips published her second novel, Shelter, a portrait of the loss of innocence at a West Virginia girls' camp in the summer of 1963. Phillips' next novel was MotherKind (2000), winner of the Massachusetts Book Award, a story of intergenerational love and struggles within a family facing many changes. Lark and Termite, her fourth novel, was published by Knopf in 2009 to extremely positive reviews and has been selected as one of five finalists for the National Book Award in fiction.
Phillips' works have been translated and published in twelve foreign languages. She is the recipient of a Guggenheim Fellowship, two National Endowment for the Arts Fellowships, and a Bunting Fellowship from the Bunting Institute of Radcliffe College. Phillips has held teaching positions at several colleges and universities, including Harvard University, Williams College, and Boston University. She is currently Professor of English and Director of the Rutgers-Newark Master of Fine Arts in Creative Writing Program.   During its inaugural year, The Atlantic magazine named Phillips' MFA program at Rutgers-Newark to its list of "Five Up-and-Coming" creative writing programs in the United States.
Her work is mentioned in the 2006 lectures for The Modern Scholar series "From Here to Infinity" by Professor Michael D.C. Drout. He refers to her style (perhaps borrowed by science fiction writer William Gibson in his book Neuromancer) as "headlong rush of story and description."
Phillips and her husband, physician Mark Stockman, have four sons. One of their sons, Theo Stockman, was an original member of the revival of Hair on Broadway, and is currently in American Idiot.