Phillips was born Margaret Linton in Everett, Washington to Charles and Myrtle Linton.
She wanted to be an actress from the age of four and performed in dinner theater as a hobby. She was the wife of Daniel Greene, a Navy man stationed in the Territory of Hawaii when the attack on Pearl Harbor occurred. She was married to Chester Phillips in the 1950s, during which time she suffered a near-fatal bout of "polio and a serious abdominal infection". Both marriages ended in divorce. She had three daughters, Elizabeth, Kathy, and Virginia, and a son, Arthur.
She lived with Kathy, Virginia and Arthur in Santa Cruz, California in the early to mid 1960s. Her oldest daughter Elisabeth had left the household. She worked as an accountant at Sweet Service in Santa Cruz during that time. She was involved with local theatrical groups; her favorite play was Bell, Book and Candle. After retiring from accounting, Phillips moved back to Washington to enroll in drama school at the University of Washington, but never completed her degree "because I started getting so much work."
She started acting professionally in her late 60s. Her first film performance was in the TV movie Case in 1985. In 1990, she originated the role of Ruth-Anne Miller on Northern Exposure. The character had been intended to be intermittent, but gradually appeared more frequently until she became a regular. After the fifth season of the show was wrapped up in 1995, she was undergoing heart surgery when an aortic aneurysm ruptured. Had she not already been on the operating table, it probably would have been fatal.
After Northern Exposure, Phillips played several guest roles, especially on 7th Heaven. She played the dude ranch-owning godmother of Mary-Kate and Ashley Olsen's characters in How the West Was Fun. Her last role was a guest spot on ER in 2000. She also founded the Woodinville Repertory Theater in 1998 and served as its artistic director in Woodinville, Washington, until her death.
She died in 2002 from pulmonary disease in Seattle, aged 84, although some sources erroneously indicated lung cancer. (Like her Northern Exposure character, she was a smoker from an early age, having started at age thirteen.) Her son Arthur died in 1970 and her second daughter, Kathy, also preceded Phillips in death.