Born in London, England, MacGrath (pronounced mac-GRAW) began her acting career with a small role in the 1936 British film Whom the Gods Love, a biopic about Mozart and his wife Constanze. She followed this with Pygmalion and a series of B-movies, including All Hands, Meet Maxwell Archer, and The Saint's Vacation.
MacGrath made her Broadway debut in 1948 in the play Edward, My Son; she reprised her role in the film adaptation the following year. In 1951 she collaborated with Kaufman and Heywood Hale Broun on the writing of The Small Hours, which closed after 20 performances. The following year she and her husband scripted the even less successful Fancy Meeting You Again (in which she starred), which ran for only 8 performances. The couple finally achieved a hit in 1955 with Silk Stockings, the Cole Porter musical for which they co-wrote the book with Abe Burrows. She returned to acting for Tiger at the Gates and The Potting Shed.
Having settled in the United States following her marriage to Kaufman, MacGrath appeared in a number of American anthology television series popular in the 1950s, including The Philco Television Playhouse, Studio One, Lux Video Theatre, The United States Steel Hour, The Alcoa Hour, and Hallmark Hall of Fame.
MacGrath returned to the United Kingdom following her divorce. She died of complications from a stroke in London at the age of 77.