Graham was born in Milwaukee, Wisconsin, the daughter of Joan, a teacher and noted author of children's books, and James Graham, a retired FBI agent. Graham has a younger sister, Aimee, who is also an actress and writer. The family, who are of Irish descent, followed a strict traditional Catholic upbringing; Graham has since estranged herself from the Catholic Church. Graham has practiced Hinduism and associated transcendental meditation since 1991. Graham graduated from the Agoura High School in California in 1988. In 1986, she appeared on a special "Teen Week" episode of the NBC-TV game show Scrabble.

After high school, Graham enrolled in extension classes of the University of California at Los Angeles (UCLA), and she also met the actor James Woods. They became romantically involved at about the time she was cast in the movie Diggstown, which starred Woods. Two years later, Graham stopped taking classes at UCLA to pursue acting full time, over her parents' objections. She th