Steen was born on 3 November 1964 in Frederiksberg, Denmark, the daughter of musician and Conductor Niels Jørgen Steen and the Actress Avi Sagild. She is the sister of musician and actor Nikolaj Steen. Steen applied to the Acting School of Odense Theatre 13 times before being accepted and attending from 1988 to 1992. Steen performed on stage in Dr. Dante productions and been associated with the Royal Danish Theatre since 1997. In 1997 she wrote and performed in the satirical television series Lex og Klatten. In 1998, Steen became an active participant in the Dogme 95 film movement as the only performer to appear in the first three movies: Lars Von Trier's The Idiots, Festen by Thomas Vinterberg, and Søren Kragh-Jacobsen's Mifune's Last Song.
Steen won her first Bodil Award as the Best Supporting Actress in 2000 for Den eneste ene (The One and Only). In 2002, Steen won the Bodil Award, Robert Award and American Film Institute's Grand Jury Prize for her leading role as the controlling loudmouth Nete in Okay. The same year she also won both the Bodil and Robert awards as Best Supporting Actress in Elsker dig for evigt (Open Hearts).
Steen made her directorial debut in with the 2004 tragedy-drama Lad de små børn... (Aftermath) about the emotional trauma of a young couple after the death of their daughter. The film received awards at several film festivals including the Lübeck Nordic Film Days and the Film by the Sea International Festival. In 2007, Steen directed her second feature, the comedy film With Your Permission (Til døden os skiller).