Thompson was born in Montreal, Quebec, the daughter of W. R. Thompson, a geneticist and the head of the Department of Psychology at Queen's University, and Mary, who taught in the Queens Drama Department for many years. She is also the sister of Bill Thompson, a Professor of Psychology who composed the music for a number of Judith's radio and stage plays. Thompson was born in Montreal and raised in Middletown, Connecticut and then Kingston, Ontario. She studied drama at Queen's and then studied acting at the National Theatre School of Canada (NTS) in Montreal. Thompson worked as an actor for a year, but then gave it up to pursue writing.

While in a mask class at NTS, Thompson had developed the character Theresa, a mildly mentally-handicapped Aboriginal woman based on people she had met while working as an assistant social worker during the summers in Kingston, Ontario. This character was to provide the core of Thompson's first play The Crackwalker (1980), which focuses on Kingston's sub-proletariat class. It is one of the most tragic plays in Canadian theatre. In 1991, CBC reviewer, Jerry Wasserman called the Vancouver Fringe Festival production, The Diamond among the pebbles ... Maybe the most powerful play ever written in Canada about two down and out couples in Kingston Ontario living on the edge, the outer edge of respectability and trying to make some sense of their lives - to find love and a kind of domestic normality under the worst conceivable conditions. It's a very, very disturbing play and I think a deeply tragic play about the lowest depths one can imagine in a Canadian city. About a Vancouver production at The Firehall Arts Centre in 1993, The Vancouver Sun's Barbara Crook wrote The Crackwalker is not theatre for the timid. Judith Thompson’s first play is a graphic, harrowing glimpse at life on the edge, at individuals battered by poverty, ignorance and hopelessness. It is also a brilliant piece of stagecraft that makes use of every well-chosen word and powerfully dramatic moment to force audience members to confront their own darker sides. If you're looking for theatre that takes you to the edge of hell, The Crackwalker fits the bill. The Georgia Straight's, Colin Thomas wrote, Playwright Thompson also manipulates our relationship to the material by letting us laugh. A lot. .. Actress Jennifer Fahrni's Theresa is an exquisite piece of work, so authentic you can almost smell the lard in her diet, so innocent, she feels like a fairy who grew up in the wrong neighbourhood. The great thing about this performance is that you can't see the craft - the timing, the psychological understanding that makes it all work. As Sandy, Nancy Sivak reconciles the apparent contradictions in a character who attacks her boyfriend with stiletto heels but who is afraid to sleep alone. We all know the paradox of survival skills that keep us isolated and Sivak reflects those back to us.

Thompson's second play, White Biting Dog (1984), was an expressionistic and poetic black comedy about an eccentric and wildly self-destructive family. I Am Yours (1987), while containing similarly expressionistic elements, attaches these to the fears and fantasies of the central characters, to create an even more powerfully compelling theatrical experience.

Lion in the Streets (1990), one of her strongest plays, uses a structure similar to Arthur Schnitzler's La Ronde to follow violent and cruel impulses from one character to another, a route which the ghost of a young murdered girl, Isobel, uses to track down her killer. A penultimate scene which Thompson cut after the first workshop production of the play, was restored for the 1999 Theatre Kingston production, and Thompson has since then included the scene in published editions of the play as one of two alternative versions. Productions of the play have been held in a wide variety of North American locations, including: Toronto, Chicago, New York, Los Angeles, Portland and Vancouver, but also ?ód?, Poland.

Sled (1997), which began life as a seven-hour play called The Last Things, but was later cut down to three hours, attempts again to pursue human violence back to its sources. Thompson first wrote Perfect Pie as a short monologue for television in 1993, but in 2000 expanded the story into full-length play about two teenaged girls whose lives diverge dramatically after a violent incident. In 2002, Perfect Pie was also made into a feature film of that name, which, while satisfying in itself, offered a more conventional version of the uncanny story told in Thompson's play. Habitat, which premiered in 2001 at CanStage, the major regional theatre in Toronto, shows how a middle-class community is torn apart into factions when a group home for troubled youth is established on a quiet residential street. Capture Me, which premiered in early 2004 at the Tarragon Theatre in Toronto, is centred on a kindergarten teacher who, while searching for her birth mother, is stalked by her violent ex-husband.

In 1991, she adapted and directed Henrik Ibsen's Hedda Gabler for the Shaw Festival. A remount of Thompson's adaptation appeared at Buddies in Bad Times Theatre in 2005. Her adaptation was also performed at the Mainline Theatre in Montreal in February 2008. Her translation of Serge Boucher's Motel Hélène appeared at the Tarragon Theatre in 2001.

Thompson's work embraces visceral and subconscious elements of human experience which are seldom seen on stage. While the ambitiousness of her scope can occasionally result in plays which seem somewhat unwieldy in their form, she has an astonishing gift for providing theatrical experiences which incisively reach the deepest recesses of her audience's imaginations.

She is currently a professor at the University of Guelph, where she teaches acting and playwriting courses.

Thompson has won the Governor General’s Award for Drama, in 1985 for her play, White Biting Dog; and in 1989 for a collection of her plays, The Other Side of the Dark. She has won a Toronto Arts Award and the Canadian Authors Association Award. She is the recipient of several Floyd S. Chalmers Canadian Play Awards, including one in 1987 for I Am Yours, and in 1991 for Lion in the Streets. Tornado won an award for Best Radio Drama in 1988. Thompson has received several Dora Mavor Moore Awards from the Toronto Alliance for the Performing Arts. In 2005, she was made an Officer of the Order of Canada, and in 2007 she was awarded the Walter Carsen Prize for Excellence in the Performing Arts by the Canada Council for the Arts. In 2008 she became the first Canadian to be awarded Susan Smith Blackburn Prize, which recognizes outstanding women playwrights each year.