Urmila's first role as a child Artist was in 1977 in the film Karm. Following minor roles in Shreeram Lagoo's Marathi film Zaakol (1980) and Kalyug (1980), she achieved success at the age of nine in Shekhar Kapur's Masoom in 1983. She was praised for her roles by critics.
Matondkar made her acting debut as a child Artist in the 1980 Marathi film Zaakol, and had her first Bollywood release with the drama Kalyug (1981). She later gained recognition for her child role in the highly acclaimed drama Masoom (1983), following which she appeared in a few other films as a child Artist. Matondkar played her first adult role in the blockbuster Malayalam film Chanakyan (1989), and followed it with the box office hit Narsimha (1991), her first Bollywood film as an adult. Initially, She had success as a lead heroine and worked with Ram Gopal Varma in many movies.
She appeared in a few movies such as Bade Ghar Ki Beti in small role. She debuted with the movie Narsimha. She next starred in the fantasy film Chamatkar, along with Shahrukh Khan. In 1989, Urmila was paired opposite Kamal Haasan in the Malayalam blockbuster Chanakyan. She went on to frequently collaborate with film Director Ram Gopal Verma, who is known for his thrillers. Her first film with him was Antham (Telugu film), which was a bilingual film and was titled as Drohi in Hindi. She has also made her appearance in the Doordarshan serial Bible Ki Kahaniyan and Indradhanush. Since then, she has starred in numerous subsequent RGV pictures, such as Gaayam (Telugu).
Urmila returned to film as the female protagonist Mili Joshi, in the romantic comedy Rangeela (1995). Featuring her opposite Aamir Khan, the film relates the story of two people with contrasting personalities. The film was received favourably by critics and became successful at the box office with gross earnings of ₹15.05 crore (US$2.3 million). Gomolo described "Urmila looking the glam girl as ever and superb performances", at the 41st Filmfare Awards, Rangeela was nominated for 12 awards including a Best Actress nomination for Matondkar. The film also gave Urmila's career a new lease of life, and the success of Rangeela... established Matondkar as a leading Actress of Hindi cinema.
In 1997 her film Judaai was a hit, but her other releases such as Daud, Aflatoon and Mere Sapno Ki Rani were not as successful. Her performance in Judaai earned her a Filmfare Best Supporting Actress Award nomination. The film, which co-starred Anil Kapoor and Sridevi, also emerged as a major commercial success.
Apart from holding a successful acting career, she is regarded as an outstanding Dancer and has been a featured performer in many Bollywood item numbers. Her best-known item number is the Chamma Chamma sequence from the 1998 China Gate. Other hit numbers include Aaiye Aajaye from the film Lajja. She was signed to perform the item song in Ram Gopal Varma Ki Aag, a remake of the 1975 blockbuster Sholay. She played the role originally played by Helen.
In 1999, Matondkar had six film releases; four of them − Jaanam Samjha Karo, Hum Tum Pe Marte Hain, Mast and Dillagi − were critical and commercial failure . However, Matondkar's performance was generally well received by critics, (Rediff describing "Urmila is just about the only heroine who can give Karisma a run for her money when it comes to pelvic thrusts"). Her first hit that year was Ram Gopal Varma's thriller film Kaun, opposite Manoj Bajpai, in which she played the Nameless character. Khalid Mohamed of The Times of India (who would later cast her in Tehzeeb) wrote that she "rivets the viewer's interest, carrying off entire reels on her shoulders, through a gamut of quicksilver facial expressions. Vulnerable and baffled, she is utterly believable as the traumatised girl-next-door". Matondkar next played the love interest of Sanjay Dutt's character in the hit action comedy Khoobsurat.
During the 2000s, Matondkar revealed strong, dramatic and psychological features in her roles, and delivered a number of critically acclaimed performances. In 2000, Matondkar re-united with Ram Gopal Varma for one project, the action film Jungle (2000 film) − (alongside Fardeen Khan and Sunil Shetty). It was a moderate critical and commercial success. In the same year she acted opposite Govinda in Kunwara, a romantic comedy directed by David Dhawan, the film underperformed at the box office, with a grossing of ₹181.8 million (US$2.8 million).
She won favourable reviews for her role as an obsessive lover in Pyaar Tune Kya Kiya (2001), and received various Best Villain nominations for her performance. The film was received favourably by critics and became successful at the box office with gross earnings of ₹28.05 crore (US$4.3 million).
In 2002, Matondkar appeared alongside Fardeen Khan and Anil Kapoor in Anupam Kher's love-saga Om Jai Jagadish. She played the role of Neetu, the love interest of the protagonist (played by Fardeen Khan). The film received positive to mixed comments from critics, but failed commercially. Anees Bazmee's psychological thriller Dewangee was Matondkar's next release; she played a pretty dancer-cum-singer in the film. Co-starring Ajay Devgan and Akshaye Khanna, the film was well received by critics and did moderate Business at the box office. Deepa Gumaste, writing for Rediff, praised the performances of the three leads and wrote: "As usual, the heroine has little to do apart from looking cute in the first half and scared in the second. It is another matter that she is supposed to be the object of the film's conflict. For what it is worth, Urmila Matondkar executes her part well".
In 2003, she was part of several projects. She played the role of a north Indian girl in the background of the 1947 India partition in the critically acclaimed Pinjar. She played the title role in Khalid Mohammed's drama Tehzeeb, starring along Shabana Azmi, both of which underperformed at the box office.
In 2004, she got critical recognition for her performance as a merciless avenger in Ram Gopal Verma's Ek Hasina Thi, co-starring Saif Ali Khan. The film was a box office success. She played the role of a deceived woman who is jailed because of her lover, played by Khan, and later flees from prison to seek revenge on him. Once again, Matondkar was nominated for a Filmfare award for her performance.
Next year in 2005, she tried her hand with another horror film, playing the title role in the film Naina. However, her performance as the caring daughter of Anupam Kher in Jahnu Barua's art film Maine Gandhi Ko Nahin Mara was very well received, and she won her second Bollywood Movie Award for Best Actress. She next appeared in Pankaj Parashar's Love Story film Banaras: A Mystic Love Story with Ashmit Patel and Dimple Kapadia, the film was not well received by critics. Raja Sen described it as: "And then there's Urmila. Let's start with the good. She looks great, refreshingly beautiful and striking. That's about it. This is an Actress who has worked hard to earn respectability, but this role, like the film itself, suffers from inconsistency". She next starred alonsgide in the woman-centric drama Bas Ek Pal (2006). Matondkar's all four releases underperformed at the box office.
In 2007, Matondkar lent her voice for Asha Bhonsle's album Asha and Friends Vol 1, where she performed with Bhosle the duet song "Mehbooba Dilruba". In fact, throughout the 1990s and 2000s, Bhosle sang the most songs for Urmila. In that same year, she was seen on the second season of the dance reality show Jhalak Dikhhla Jaa on Sony Television as a judge along with Jeetendra and Shiamak Davar.
In 2008, Matondkar débuted on Indian television as a host of a reality show named Waar Parriwar.
In 2011, Matondkar was one of the judges on the dance reality show named Chak Dhoom Dhoom on Colors channel, along with Javed Jaffrey and Terence Lewis.
In 2012, Urmila Matondkar was a judge on the Marathi dance reality show Dance Maharashtra Dance on Zee Marathi and was seen in the Marathi movie Hridayanath.
However, she was mainly noted for her performance in Bhoot, a horror film. Matondkar enacted a ghost-possessed woman; her performance was much appreciated by critics and audiences and she won her first Filmfare Award under the Best Actress (Critics' Choice) category, as well as various Best Actress awards at different award ceremonies, such as Star Screen Awards, Zee Cine Awards and Bollywood Movie Awards. She later received the national honour Rajiv Gandhi Award for the film, as a recognition to her achievement in Bollywood. Taran Adarsh wrote of her performance: "...the film clearly belongs to Urmila Matondkar all the way. To state that she is excellent would be doing gross injustice to her work. Sequences when she is possessed are simply astounding. If this performance doesn't deserve an award, no other performance should. It beats all competition hollow". Khalid Mohamed wrote, "Matondkar is consistently excellent - controlled and persuasively vulnerable – as the beleaguered wife, evoking your concern and empathy. She’s the major triumph of Bhoot actually".
In 2014, Urmila Matondkar made her Marathi film début with the film Ajoba. she was praised for her performance by critics.
She married Kashmir-based businessman and model Mohsin Akhtar Mir on 3 March 2016.