Hill was born in Haddonfield, New Jersey and grew up in Philadelphia, Pennsylvania. She entered the movie business in 1975 and was unhappy with the level of condescension she experienced because of her gender. She started as a production assistant on adventure documentaries, and progressed through jobs as a script supervisor, assistant director and second unit director. Hill first worked with John Carpenter in 1975, as the script supervisor and assistant editor of Assault on Precinct 13. This led not only to further professional collaborations between Hill and Carpenter, but also marked the beginning of their personal relationship.

In 1978, she and director Carpenter co-wrote the horror movie Halloween. Following its success, Hill and Carpenter worked together on Halloween II (1981) and Halloween III: Season of the Witch (1982) Their other credits together include: The Fog (1980), Escape from New York (1981) and its sequel, Escape from L.A. (1996). In 1986, Hill formed an independent production company with her friend Lynda Obst. Together, they produced Adventures in Babysitting, Heartbreak Hotel, and The Fisher King. In 1988, she entered a contract with Walt Disney Pictures under which she produced Gross Anatomy, short films for the Walt Disney theme park, and an NBC special for Disneyland's 35th anniversary. She also produced The Dead Zone (1983), Head Office (1985), and Clue (1985).

She was honored by Women in Film in 2003. After years of having people not taking her seriously because she was a woman, Hill became one of the most powerful producers in Hollywood. She recalled the transition from being called "sweetheart" and "darling" in her early years as a producer to the respectful "ma'am" many years later on the DVD commentary for Escape From New York with production designer Joe Alves.

Despite being diagnosed with cancer in February 2004, Hill continued to work on several projects. She worked with John Carpenter and actor Kurt Russell on a comic adaptation of the Snake Plissken character as well as a proposed Snake Plissken video game. She reunited with Carpenter to produce the remake of The Fog. At the time of her death in 2005 she was working on the Oliver Stone film World Trade Center.

After her death Carpenter told Associated Press working with Hill was "one of the greatest experiences of my life - she had a passion for not just movies about women or women's ideas but films for everybody".