Otto was born in Brisbane to stage and film actor Barry Otto and former actress Lindsay Otto (who retired from acting upon Miranda Otto's birth). She appeared in several plays at the Nimrod Theatre which attracted the attention of casting director Faith Martin. Otto graduated from the National Institute of Dramatic Art in Sydney in 1990.
She came into prominance in the early 2000s for playing Éowyn in Peter Jackson's The Lord of the Rings film trilogy. The daughter of actors Lindsay and Barry Otto and the sister of actress Gracie Otto Otto began acting at age eighteen and has performed in a variety of independent and major studio films.