

Bilson was born in Los Angeles, the daughter of Janice (née Stango), a sex therapist, and Danny Bilson, a writer/director/producer. Bilson's father is Jewish and her mother, a native of Philadelphia, is Italian American. Bilson's father comes from a show business family; her great-grandfather, George Bilson, (born in Leeds, West Yorkshire, UK) was the head of the trailer department at RKO Pictures, her Brooklyn-born great-grandmother, Hattie Bilson, was a screenwriter, and her grandfather, Bruce Bilson, is a film director. Bilson's parents divorced during her childhood, and in 1997, her father remarried Heather Medway, an actress and the mother of Bilson's half-sisters Hattie and Rosemary.
Bilson has been noted as having a "self-destructive, rebellious period" during her teen years. When she was 14, she and a group of her brother's friends were involved in a car accident, a head-on collision with another car. As a result, Bilson was unconscious for a few days, has a scar above her right eye, and sometimes suffers from migraines and memory loss. She has stated that the experience "changed" her, encouraging her to "stop... getting into trouble" and stopping her from "going down that road". Bilson graduated from Walter Reed Middle School in 1995 and from Notre Dame High School in 1999. During her time at Notre Dame, she appeared in productions of Bye Bye Birdie, Once Upon a Mattress and The Crucible.

Bilson attended Grossmont College in a suburb of San Diego, but dropped out after one year, taking her father's advice to pursue a professional acting career and making several appearances in commercials, including advertisements for Subway restaurants, Raisin Bran and Pepto-Bismol. She made her screen acting debut in early 2003, appearing in episodes of Buffy the Vampire Slayer and 8 Simple Rules for Dating My Teenage Daughter. Bilson was subsequently cast in The O.C., which debuted in August 2003. Her character, Summer Roberts, was initially intended to appear in only a few episodes, but became a series regular after a successful run, as Bilson's on-screen romance with Seth Cohen (Adam Brody) became a noted aspect of the series.
As a result of the success of The O.C., Bilson has become well-known among teenage audiences. At the 2005 Teen Choice Awards, Bilson collected three awards: "Choice Hottie Female", "Choice TV Actress (Drama)" and "Best Onscreen TV Chemistry" (jointly won with Adam Brody). In 2005, Maxim magazine named her sixth in their annual "Hot 100 List"; in 2006, the publication awarded her #14. The UK edition of FHM Magazine named her 28th in the 2006 100 Sexiest Women in the World list, while the US Edition Ranked her 77th in 2005. Bilson was also named one of People magazine's "100 Most Beautiful People" in 2006. In January 2008, radio host Howard Stern named her the "hottest chick in Hollywood."

Bilson has stated that she prefers acting in feature films to appearing on television, and that she would like the kind of roles "that Natalie Portman and Scarlett Johansson are offered". She has specified that though she is "grateful" for the success of The O.C., she feels that the show "is over" and that she is "ready to move on" to film roles. In September 2006, unconfirmed reports surfaced that Bilson was linked to star in a film version of the comic book character Wonder Woman; Bilson has stated that these reports were untrue.
In late 2006, Bilson was cast in the role of Millie in Doug Liman's thriller Jumper, as the replacement for actress Teresa Palmer; the film was released on February 14, 2008. She also appeared in a two-episode arc on The O.C. creator Josh Schwartz's NBC comedy, Chuck, and in the film New York, I Love You, and appeared in the 100th episode of How I Met Your Mother as Ted's latest love interest. In September 2008 she started shooting the indie romantic film Waiting for Forever, directed by James Keach.

Bilson and Hayden Christensen met on the set of Jumper in 2007 and became engaged in 2008. She and Adam Brody, her co-star on The O.C., dated for three years. Their relationship ended in 2006.
Bilson has been recognized by several media sources as being a "fashion junkie". She has described herself as having a "vintage" sense of style, and noted Kate Moss and Diane Keaton as inspirations. Her clothes often have a "boho" feel to them. She approached DKNY Jeans in late 2007 with a view to design a clothing line with the popular fashion brand. Together they created Edie Rose. The collection was launched in September 2008. An advertising image was released in July 2008 which featured Bilson modelling her Edie Rose collection. Of her line, she said in an interview with Teen Vogue "I wanted to keep it as separate as possible from Rachel Bilson the actress. I'm hoping people will appreciate it for the clothes, not the person behind them." Much of her fashion collection was lost when her home was burglarized in May 2009. Before appearing in Maxim, Bilson had turned down requests to appear seminude in men's magazines, specifying that she feels that her body "is sacred" and "not there for the whole world to see".