Lynskey made her feature film debut at age 16, starring as Pauline Parker in Heavenly Creatures, which was inspired by the infamous Parker–Hulme murder case. The film – directed by Peter Jackson and co-starring Kate Winslet – was released to widespread acclaim in 1994, with Richard Corliss of TIME describing Lynskey as "perfect... fearless in embodying teenage hysteria." Heavenly Creatures won Jackson an Academy Award nomination for Best Original Screenplay, and is now considered a cult film. Lynskey was named Best Actress at the 1995 New Zealand Film and TV Awards for her performance. Lynskey's next big role came in 1998, when she cast opposite Drew Barrymore in Ever After, a re-imagining of the Cinderella story. This was followed by significant parts in Detroit Rock City, But I'm a Cheerleader, The Cherry Orchard, Shooters and Coyote Ugly, as well as the independent feature Snakeskin ("an excellent peformance," wrote David Stratton), for which she received her second nomination for Best Actress at the New Zealand Film and TV Awards. In 2002, she appeared alongside Reese Witherspoon in the romantic comedy Sweet Home Alabama, co-starred with Katie Holmes in Abandon and made her television debut in Rose Red, a miniseries penned by Stephen King. In Shattered Glass, a 2003 drama depicting the rise and fall of journalist Stephen Glass, Lynskey played a writer for The New Republic. Based on a true story, the film received unanimous praise and several award nominations. Later that year, she landed the part of Rose – Charlie Harper's deranged but incredibly charming neighbor – on the CBS comedy series Two and a Half Men, which fast became one of the most popular sitcoms on American television. Despite leaving the main cast in 2005 to concentrate on film work, Lynskey continues to make guest appearances on the show, with her character having recently set her sights on Walden (Ashton Kutcher). In 2006, she played the wife of U.S. Marine corporal Rene Gagnon in Clint Eastwood's acclaimed World War II drama Flags of Our Fathers, and returned to New Zealand in late 2007 to a starring role in Show of Hands, which premiered at the 2008 Montreal Film Festival and earned Lynskey a nomination for Best Actress at the Qantas Television Awards. She also played the female lead – opposite Matt Damon – in Steven Soderbergh's bizarre black comedy The Informant!, based on the true story of FBI whistleblower Mark Whitacre. The film premiered at the 2009 Toronto International Film Festival, and Lynskey's portrayal of Whitacre's wife, Ginger, was described as "sterling" by The Independent. Soderbergh told the Los Angeles Times, "She is so watchable, you never quite know what you're going to get, you just know it's going to be good. Her rhythms are really unusual, like her cadence and her reaction times to things, and the way she sort of lays out a sentence. It's just really, really interesting." Lynskey's 2009 films also included Leaves of Grass, in which she co-starred with Edward Norton, and Jason Reitman's Academy Award-nominated Up in the Air, in which she played Julie, the younger sister of George Clooney's character. In October that year, she was presented with a Spotlight Award by the Hollywood Film Festival. In 2011, Lynskey's performance in the critically acclaimed Win Win brought the actress some of her best reviews to date, with TIME commenting, "[she] was wonderful in Away We Go, The Informant! and Up in the Air... In Win Win she gives a very different kind of performance and is even better." The following year, she appeared in Focus Features' comedy Seeking a Friend for the End of the World with Steve Carell, and had a key role in the film adaptation of Stephen Chbosky's novel The Perks of Being a Wallflower, playing the mentally disturbed aunt of main character Charlie (Logan Lerman). It was the independent drama Hello I Must Be Going, however, which gave Lynskey her most significant role of 2012. Her portrayal of Amy, a dispirited thirty-something who finds herself having to move back in with her parents, was described as "exquisite" by Kenneth Turan of the Los Angeles Times. "Lynskey inhabits the role so completely that she becomes someone we root for unreservedly," wrote Turan. The performance earned her a nomination for Breakthrough Actor at the 2012 Gotham Awards. In 2013, she starred alongside David Krumholtz in Teddy Bears, which was described as "smart" and "poignant" by The Hollywood Reporter. Forthcoming projects include Goodbye to All That, We'll Never Have Paris and They Came Together, as well as the HBO series Togetherness.
In 2001, Lynskey met American actor Jimmi Simpson during the filming of Rose Red, in which they both appeared. They became engaged in 2005 and married on 14 April 2007, in a chapel on Lake Hayes, near Queenstown, New Zealand. Also in attendance was her close friend Emily Deschanel, who was one of her bridesmaids. Lynskey filed for divorce from Simpson on 25 September 2012, citing irreconcilable differences.