Neelam Kothari was born in Hong Kong. As a child, she learnt to play the keyboard and danced Jazz Ballet. Her family has a traditional jewellery making business, making high-class pieces. After her early childhood in Hong Kong, her family moved to Bangkok. Neelam was holidaying in Mumbai when she was approached by director Ramesh Behl. She decided to give acting a shot and signed for the film Jawaani (1984) alongside Karan Shah, Tina Munim's nephew. But the film was a major flop commercially.

Her performance in her debut film was noticed in film circles and she received offers. She later became famous in 1986 for her role in the film Ilzaam opposite another debutant, Govinda. She starred opposite Govinda in 14 movies and 6 were hits such as Love 86, Khudgarz (1987), Hatya (1988) and Taaqatwar (1989). She had 5 hits opposite Chunkey Pandey, such as Aag Hi Aag (1987), Paap Ki Duniya (1988), Khatroan Ke Khiladi,Mitti Aur Sona and Ghar Ka Chiraag. Her career's most acclaimed hit film was Ghar Ka Chiraag opposite Rajesh Khanna. She also worked in the Bengali film Badnaam (1990).

Box office success eluded her from the early 1990s in Hindi films. Her films Ek Ladka Ek Ladki opposite Salman Khan, and Parampara opposite Saif Ali Khan were flops.Even with Chunky Pandey, her films Mandira,Zakhm, Khule Aam were not successful. Her few films of 1990s to be successful include Ranbhoomi, Pratigyabandh, Shankara, Santaan were the few successful film of 1990s.

Her subsequent films like Doodh Ka Karz, Banjaran, Indrajeet, Agneepath, Gharana, Amiri Garibi, and Afsana Pyar Ka were box office flops.

She was also noticed for her appearance in the 1998 film Kuch Kuch Hota Hai, where she played herself as a VJ.Her last successful film was the 1999 family drama film Hum Saath Saath Hain in which she played a supporting role. Her last film was the delayed release Kasam in 2001, opposite Chunky Pandey.

Neelam married Rishi Sethia, son of a businessman from the U.K. Their marriage was short-lived. On 24 January 2011, she married actor Samir Soni. After 2 years of marriage, they decided to adopt a daughter on 2 September 2013 and named her Ahana.

Neelam featured in Bina Mistry's Hot Hot Hot music video^[7], a song that is part of a compilation of dance hits in the 1995 BMG release, titled Channel [V] Hits: The Ultimate Dance Collection. The song became a hit when it was featured as part of the soundtrack of Bend It Like Beckham (2002).

In 1998, Neelam was charged with poaching two blackbucks in Kankani during the filming of Hum Saath Saath Hain along with co-stars Salman Khan, Saif Ali Khan, Sonali Bendre and Tabu. A lower court charged her with the others under the Wildlife Act and the IPC. She had filed a revision petition before a sessions court which discharged her of Section 51 (causing harm to wildlife) of the Wildlife Act and both of 147 (punishment for rioting) and 149 (unlawful assembly of persons) of the Indian Penal Code. The Rajasthan state government then filed a revision petition before the Rajasthan high court, which again added Section 149 against her, which it had dropped. In December 2012, the Jodhpur court summoned her along with all the accused for commencement of the trial with the revised charges on 4 February 2013.

Even while pursuing her career in acting, she was interested in jewellery designing and was involved in her family business. She pursued a formal course in jewellery-designing in Mumbai and, after quitting films in 2001, started out commercially on her own under the name Neelam Jewels.^[8] She opened a showroom in Mumbai in 2004.^[9] She then launched her jewellery store in Mumbai on 25 August 2011 under the name Neelam Kothari Fine Jewels.