Peterson was born Phyllis Amanda Peterson to Dr. James and Sylvia Peterson. A native of Greeley, Colorado, she was the youngest of three children; her older siblings are sister, Anne Marie, and her brother, James Jr. Eventually, Peterson became known professionally as Amanda Peterson and was called “Mandy” by friends and family.  While living in Colorado, Peterson made her stage debut at age 7 as Gretl in the University of Northern Colorado’s stage production of The Sound of Music. At the age of 8, she won a role in the musical film Annie, where she appeared as a dancing extra. Peterson went on to land guest spots on Father Murphy and Silver Spoons. In the 1983–84 television season, she co-starred as Squirt Sawyer on NBC’s Boone. Boone was canceled after one season.  Peterson attended University High School in Greeley. After graduation, she attended Middlebury College in Middlebury, Vermont, the University of Northern Colorado, also in Greeley, and Colorado State University in Fort Collins, Colorado.

In 1985, she won her first starring role in the feature film Explorers. The following year, she co-starred in the Emmy Award-winning miniseries A Year in the Life. It was third-highest rated miniseries of the 1986–87 U.S. television season with a 16.9/27 rating/share and was later adapted into a television series of the same name. The series aired from 1987 to 1988 on NBC. It was during this time period that Peterson was nominated for and won a Young Artist Award for Best Young Actress Starring in a Television Drama Series in 1987.  Also in 1987, Peterson co-starred with Patrick Dempsey in the teen comedy Can’t Buy Me Love. The film earned mixed reviews but became the sleeper hit of the summer. As a result, Peterson and Dempsey obtained teen idol status after the release and subsequently appeared on covers of teen magazines such as Tiger Beat, Teen Beat and many others for a considerable amount of time. Peterson went on to appear in other films including Listen to Me (1989), and made a guest appearance on Doogie Howser, M.D. in 1990. Peterson’s last onscreen role was in the 1994 film, WindRunner, starring Jason Wiles.  During the course of her acting career, Peterson was featured in more than fifty television commercials.

After 1994, Peterson left the entertainment industry. She briefly modeled for a Colorado photographer in 2012.  Peterson was twice married, first to Joseph Robert Skutvik then, following their divorce, to David Hartley. Together with Hartley, she had two children.  Between 2000 and 2012, Peterson was arrested five times for various offenses including assault, DUI, and possession of drug paraphernalia. In late 2005, she spent close to three months in jail. Peterson’s most recent arrest was in 2012.  Peterson died at the age of 43 on July 3, 2015. Her body was discovered in her home in Greeley, Colorado, at approximately 6 p.m. on July 5, 2015. A spokesman for the Greeley police department said law enforcement was responding to a request to check her well-being and discovered the door to her apartment was unlocked. Details regarding the cause of death have been withheld because of the ongoing investigation. An autopsy by the Weld County coroner was scheduled for July 6, 2015.  During an interview with Entertainment Tonight, her mother stated Peterson had problems with drug use when she was younger and believed her to be drug-free when she died. Peterson’s mother went on to say about her daughter’s death, “this was not, in any way, a drug thing”.