She was educated at Notting Hill High School as a day girl and later at North Foreland Lodge as a boarder.
Churchill is best known for her role in the film Royal Wedding (1951) as Anne Ashmond, romantic interest of Fred Astaire as Tom Bowen. In the same year, she had her own television show. She also appeared in He Found a Star (1941), All Over the Town (1949), Fabian of the Yard (1954) and Serious Charge (1959).
In 1961, she appeared as Rosalind in Shakespeare's As You Like It at the Pembroke-in-the-round Theatre in West Croydon. Her parents were noted as paying a surprise visit to watch her performance which was almost entirely attended by Croydon schoolchildren, and her father (who sat in the front row of an in-the-round performance and so was highly visible throughout) fell asleep.
During the Second World War, Churchill joined the Women's Auxiliary Air Force (WAAF). In her account of the work of photo reconnaissance Evidence in Camera Constance Babington Smith records that she was with them and worked closely on the interpretation of photographs for the 1942 invasion of North Africa, Operation Torch. Known by the name Sarah Oliver, Babington Smith says she was "a quick and versatile interpreter." Aspects of Churchill's wartime service are also described in detail in Women of Intelligence: Winning the Second World War with Air Photos.
American author Christopher Ogden's biography of Pamela Harriman and other sources indicate that during the war she had an affair with (married) US Ambassador John Gilbert Winant, and that it ended badly. Winant committed suicide in 1947.
Sarah Churchill died on 24 September 1982 at the age of 67. She is buried with her parents and siblings at St Martin's Church, Bladon, near Woodstock, Oxfordshire.
Churchill appeared in a London revival of Shaw’s Pygmalion in the 1950s, but drinking had become a problem. She was arrested for making a scene in the street on a number of occasions and even spent a short spell on remand in Holloway Prison. She wrote frankly about this in her 1981 autobiography Keep on Dancing.
She was the second daughter of Winston Churchill, later Prime Minister from 1940 to 1945 and again from 1951 to 1955, and Clementine Churchill, later Baroness Spencer-Churchill; she was the third of the couple's five children and was named after Sir Winston's ancestor, Sarah Churchill, Duchess of Marlborough.