Born in Los Angeles, California, McPhee moved with her parents and sister to the Sherman Oaks neighborhood at age 12. McPhee has been singing since the age of two. Her mother, Patricia Burch McPhee (stage name Peisha Arten), a vocal coach and accomplished cabaret singer, recognized a talent for music in her daughter and decided to train her. Her father, Daniel McPhee, is a television producer and her older sister, Adriana Burch McPhee (born June 30, 1982) is an aspiring producer as well. Also, McPhee is of Irish, Hispanic, and Italian descent.

McPhee graduated in 2002 from the Notre Dame High School. At Notre Dame High School, McPhee was a swimmer and a thespian. She performed in school plays with her elder sister Adriana; both sisters were Homecoming Princess nominees in their senior year. Afterward, McPhee attended Boston Conservatory for three semesters, majoring in musical theater. McPhee left the college due to her manager's suggestion that she try out for television pilots in Los Angeles. In a People news article, it was reported that she was rejected in "only 195 out of 200 auditions." She was eventually cast as "Paramount Girl" in the 2006 musical film about the life of Hank Garland, Crazy. Other early acting endeavors included lead actress in local professional productions of Annie Get Your Gun and The Ghost and Mrs. Muir. She was nominated in 2005 for the Theatre L.A. Ovation Award for her lead role in Annie Get Your Gun. McPhee was also part of a failed mall-based MTV soap opera entitled You Are Here, playing the older sister of a more popular younger sister. In the soap opera, she was jealous of her popular younger sister.

McPhee was persuaded by boyfriend, Nick Cokas, and parents to try out for American Idol. She auditioned in San Francisco, and sang "God Bless the Child", originally performed by Billie Holiday. Paula Abdul said that McPhee was "absolutely beautiful", Randy Jackson hailed her audition as potentially the best so far that season, and Simon Cowell complimented her for being "current" and her audition being "absolutely fantastic".

McPhee listed Whitney Houston and Brian McKnight as her favorite artists in the American Idol interview of the top 24 semi-finalists.

During the week preceding the top three show, McPhee visited her former high school for her hometown celebration. Antonio Villaraigosa visited Notre Dame High School and proclaimed McPhee's visit as "Katharine McPhee Day."

McPhee's run on American Idol led to the popular use of the term "McPheever", coined by Ralph Garman of Los Angeles radio station KROQ's morning show Kevin and Bean. She also referred to her fans as the "Kat Pack" and "McPhans".

McPhee was congratulated by Congressman Brad Sherman of Sherman Oaks, the 27th district of California, who raised a flag in her honor at the United States Capitol on the day of the finale show.

McPhee was credited with performing K.T. Tunstall's "Black Horse and the Cherry Tree" during the Idol final run.

During the Idol Finale, McPhee dueted with Meat Loaf. They performed It's All Coming Back To Me Now, which Loaf would go on to record with Rocker Chick' Marion Raven, whose voice has been compared to Katharine's.

During the competition, McPhee roomed with fellow contestant Kellie Pickler, and when Pickler was eliminated, she roomed with Paris Bennett.

On June 6, 2006, Sony BMG and 19 Entertainment announced that McPhee had signed to American Idol series creator Simon Fuller's 19 Recordings Limited and Sony BMG's RCA Records.

McPhee's debut single, "Somewhere Over the Rainbow/My Destiny" was released on June 27, 2006 by RCA Records. "Somewhere Over The Rainbow" peaked at #12 on the Billboard Hot 100 and "My Destiny" peaked at #60. Thirty-two weeks after its release, Somewhere Over the Rainbow/My Destiny had climbed to #4 on the Billboard Hot Singles Sales charts. It was 2nd highest best-selling single of 2006 after Taylor Hicks's "Do I Make You Proud?".

McPhee toured with Italian tenor Andrea Bocelli, and performed in three of his concerts during his tour in the United States from June 9 through June 11, 2006.

In June 2006, McPhee revealed to People magazine that she previously suffered from bulimia. After a period of about five years, she began treatment after qualifying for American Idol. During her run on American Idol, she lost 30 lbs.

McPhee missed the start of the American Idols LIVE! Tour 2006, due to severe bronchitis and laryngitis. McPhee commented on her illness in a public interview, saying "I just have to sing easily so I can get through the tour... I bruised [my vocal cords] because I was doing so much coughing". McPhee eventually joined the tour on July 28, in Washington, D.C. just in time for all ten finalists to visit the White House to meet President George W. Bush. The day prior to returning to the Idol's tour, McPhee was a guest co-host on The View.

On July 21, 2006, Broadway World announced that McPhee is co-producing Michael Albanese's play Red Herring along with Robert Hawk, Angelina Bruno, and Jeff Kasal. McPhee was quoted in the promo as describing a desire to become involved in theatre, stating that although "audiences know me best from American Idol... my passion has always been theatre." The play will be a part of the 10th Annual New York International Fringe Festival. McPhee and her sister appeared on debut of The Dr. Keith Ablow Show on September 18, 2006 to discuss her struggles with an eating disorder, bulimia, and her childhood fear of her father. On the show, McPhee stated that she was thought to have a learning disability during her middle school years but was finally diagnosed with a vision problem. In October 2006, Katharine McPhee dedicated a performance of Whitney Houston's "I have nothing" during the Carousel of Hope Ball which Whitney attended.

McPhee's self-titled debut album sold 116,000 copies its first week, debuting at #2 on the Billboard 200 chart. The first single from the album was the Top 30 hit, "Over It".

"Over It"'s music video hit #1 on both TRL's and VH1's Top 20 countdown. "Over It" debuted at #1 on the VH1 top 20 countdown, and maintained the top position for three consecutive weeks. The song's video also hit #1 on MTV Asia's Pop 10 Chart for 12 consecutive weeks.

"Love Story" has been confirmed to be the next single and music video from McPhee's album. "Love Story", "Not Ur Girl", "Open Toes", "Neglected", "Each Other", and "Home" were written by BMI's Pop Songwriter of the Year, Kara DioGuardi.