Kennedy was born Mary Claire Kennedy in Rochester, New York, the daughter of Nancy Helen (née Colgan) and Daniel Gerald Kennedy. She got her start in theater with the Rochester Community Players, appearing in Agatha Christie's Spider Web in October 1960 when she was 12 years old. Mimi was raised in the Browncroft neighborhood of Rochester. She was a 1966 graduate of Our Lady of Mercy High School. In the 1970s she was in a musical production called Rhinegold, featuring songs by her friend Jim Steinman.
Kennedy made her television debut in March 1977 in the short-lived television variety series 3 Girls 3, with Debbie Allen and Ellen Foley as the other two "girls". Her most notable television roles, however, were as Dharma's mother, Abby O'Neil, on the series Dharma & Greg and as Ruth Sloan on Homefront.
Kennedy is involved in several progressive activist causes, including Progressive Democrats of America for which she serves as Chairperson of the Board. Her mid-life memoir, Taken To The Stage: The Education of an Actress, was published by Smith&Kraus in 1996 with praise from advice columnist Abigail "Dear Abby" Van Buren (Ann Landers' sister) and playwright Wendy Wasserstein, who called it "one of the great theatrical memoirs."
Kennedy is a signatory to the 9/11 Truth Statement. She was a charter member of Artists United to Win Without War and a leading supporter of Dennis Kucinich’s anti-war presidential campaign in 2004. Kennedy has worked on human rights, environmental and labour issues.
Kennedy and her husband, Larry Dilg, met while attending college. Mimi went to the sister college of Larry's, where they were both matched up in a computer dating service. They have two children, Cisco and Molly.