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Crosbie was born in Gorebridge, Midlothian, Scotland, to Presbyterian parents who disapproved of her becoming an actress. Nevertheless, she joined the Bristol Old Vic Theatre School while still in her teens. Her big break came in 1970 when she was cast as Catherine of Aragon in the BBC television series The Six Wives of Henry VIII, for which she won the 1971 BAFTA Television Award for Best Actress. In 1973, she starred alongside Vanessa Redgrave in the BBC serial, A Picture of Katherine Mansfield.

In 1975, Crosbie made a similar impact as another Queen, Queen Victoria, in the ITV period drama Edward the Seventh, for which she won the 1976 BAFTA Television Award for Best Actress. She played Cinderella's fairy godmother in The Slipper and the Rose, which was chosen as the Royal Film Première for 1976. In that film, Crosbie sang the Sherman Brothers' song, "Suddenly It Happens". In Ralph Bakshi's animated movie, The Lord of the Rings, filmed in 1978, Crosbie voiced the character of Galadriel, Lady of the Elves. In 1980, she played the abbess in Hawk the Slayer. In 1986, she appeared as the vicar's wife in Paradise Postponed.

After appearing in the BBC1 drama Take Me Home, Crosbie's next major role was as Margaret Meldrew, the long-suffering wife of Victor Meldrew (Richard Wilson) in the BBC sitcom One Foot in the Grave (1990-2000) for which she is best known. She also played Janet, the housekeeper to Dr. Finlay, in the 1993 revival of A.J. Cronin's popular stories. She also had a poignant role in the thriller The Debt Collector (1999).

Crosbie's other roles include playing the monkey-lover Ingrid Strange in an episode of Jonathan Creek (1997), Edith Sparshott in An Unsuitable Job for a Woman (1997-2001), and Jessie in the film Calendar Girls (2003). In 2004, Crosbie appeared alongside Sam Kelly in an episode of the third series of Black Books, as the mother of the character Manny Bianco. In the series six and seven of the BBC Radio 4 comedy series Old Harry's Game, she played a recently deceased historian named Edith.

In 2008 she appeared in the BBC adaptation of Charles Dickens's Little Dorrit and an AXA Sun Life television advertisement for the over-50s. In 2009, she portrayed Sadie Cairncross in the BBC television series Hope Springs. In 2010 Crosbie appeared in the Doctor Who episode "The Eleventh Hour" and in the New Tricks episode "Coming Out Ball". In 2014 Crosbie appeared in the movies What We Did on Our Holiday and Into the Woods. In 2015 she appeared in a BBC adaptation of the novel Cider with Rosie. In 2016 she appeared in the new film version of Dad's Army .

Crosbie was awarded an OBE in 1998 for services to drama.

Crosbie is divorced from Michael Griffiths, the father of both her children, Owen and Selina (also an actress).

She is a campaigner for greyhound welfare. Since 2003, she has been President of the League Against Cruel Sports. She has also fronted commercials for Sun Life Direct insurance.