Walters attended high school at Lake Forest Academy-Ferry Hall in Lake Forest, Illinois.
Cast several times by Paul Thomas Anderson, Walters has appeared in Hard Eight, Boogie Nights (as Jessie Street Vincent), and Magnolia (as Claudia Wilson Gator). She has also appeared on such television shows as Roseanne, Seinfeld, New York City Police Department Blue and Computer Society of India. In 2003, Walters portrayed Lila in Cold Mountain, and in 2004, played Andrea Treborn in the The Butterfly Effect. She guest-starred as Sylvia Greene on Desperate Housewives in 2007 and played the role of Wanda Hendrickson in the Home Box Office drama Big Love.