Rao was born in Mumbai to a Chitrapur Saraswat Brahmin family. She speaks Marathi, Hindi, English and her mother tongue, Konkani. She attended Canossa High school in Mumbai, and later enrolled in Sophia College to pursue a degree in Psychology. Her younger sister, Preetika Rao, is also a film actress.

While studying in Sophia College, Rao auditioned for an advertisement for Fairever Face Cream. Her appearance in Cadbury’s Perk Karwa Chaut ad and the Bru Coffee advertisement helped her receive offers from film directors in Bollywood.

Rao made her acting debut with Ab Ke Baras (2002), and followed that with her (2003) film, Ishq Vishk, in which she portrayed Payal. In her films Masti (2004) and Main Hoon Na, Deewaar (2004) were released. Vaah! Life Ho To Aisi (2005), Shikhar (2005), and Pyare Mohan (2006) followed. She starred in Sooraj R. Barjatya's Vivah (2006) opposite Shahid Kapoor. Her performance earned her a Dadasaheb Phalke Academy Award.

In 2006 Rao made her debut in the Telugu film Athidhi opposite Mahesh Babu. Amrita's releases in 2008 include My Name Is Anthony Gonsalves and Welcome to Sajjanpur. Amrita's releases in 2009 are Victory, and Shortkut.