Rabadi was born in 1931 in Bombay, India. Her father was a priest in an agyari (Parsi fire temple) and died when she was around three years old. After her father's death, her mother used to cook the food at all the religious functions organized by the Parsi community to earn money. Rabadi had an elder sister Mani Rabadi, who was a fashion designer and worked extensively with many actresses as their dress designer in Hindi films between 1967 and 1994. Her mother's younger sister lived with her. They stayed in Tata Blocks in Parel, South Mumbai in 1930-47 period. Her sister joined Johnson and Johnson as a secretary after completing her secondary school education.

In 1942, Johnson and Johnson manufactured tablets and Rabadi was employed in the packing department. Her job was to collect the tablets that were not sealed in the tablet case, and had fallen off from the machine. She had to put them into big bottles which would go to hospitals for free distribution to patients. She was paid Rs 100 per month for doing this job.

Rabadi got into films by chance. A family friend Chinuu Mama was working with filmmaker Mehboob Khan. Chinuu was very friendly with actor and producer Sheikh Mukhtar. At that time, Mukhtar was looking for an actress for the second lead, in a film he was to start with Begum Para as the main female lead. Chinnu Mama asked Rabadi whether she would like to join films and asked her to meet Sheikh Mukhtar in the studios the next day. Mukhtar was concerned about her Hindi-speaking skills as she was a Parsi. Rabadi immediately told a worried Sheikh that she would be talking with him in Hindi itself, and that he should point out any flaw if he was able to find any. Sheikh Mukhtar was quite shocked, but was impressed. The next day, she was called to Mahalaxmi studios for her screen test for a film. She was advised by director Tara Harish to change her name to "Shammi" as there was another actress named Nargis in the industry. Her monthly salary was Rs 500. She was asked to sign a three-year contract with a condition that she couldn't work outside without their permission. She was just 18 when she signed her first film, Ustad Pedro, in January 1949. Ustad Pedro had Sheikh Mukhtar opposite Begum Para and Mukri as the comedian and it was directed by Tara Harish and this Begum Para-Sheikh Mukhtar starrer was a hit film at the box office in 1949.

She had to attend the studio every day and practice acting even when she had no shoot. Shammi had to read dialogues of other films and Harish, the film's director taught her a lot of things since he was an actor himself. Harish was directing another film with Mukesh in the lead as hero, called Malhar. Shammi was given the main lead in that film. Since the director was the same, Shammi was allowed to work outside the Sheikh Mukthar banner. She got good reviews for Malhar. Malhar's music was a super-hit and Malhar made Shammi a famous star. Shammi was financially stable now, so they shifted to Bandra. During the shooting of Malhar, she met Nargis Dutt through Jaddan bai, who was the mother of Nargis Dutt. They became good friends. After that meeting, Dutt would frequently call Shammi to her house in Marine Drive. Dutt was her best friend and later, because of their friendship she got a supporting role in the film Miss India. She quoted in an interview "Nargis was the first actor to be paid Rs 1 lakh; even Dilip Kumar did not get that kind of money then. It was the talk of the industry. Actors like me who did supporting roles would get anything around Rs 10,000 to Rs 15,000."

Her third film was third film was with Dilip Kumar and Madhubala, called Sangdil, but it got released late in 1952 and was a flop. Since Sangdil failed, she did not get work for seven months. Shammi used to play the main lead or second lead in films from 1949 to 1952, but after Sangdil, she started taking whatever work came to her and took a few films with vamp roles. She quoted in an interview: "Many people scolded me when I did that but I was clear in my mind that I had to work. Sitting at home would not help me since I was the breadwinner of the family."^[12] She got roles as the leading heroine opposite heroes such as Mahipal, Manhar Desai and Karan Dewan. After release of K. Asif's hit film Musafirkhana, she was flooded with similar roles. Her role opposite comedian Johnny Walker was appreciated in this film.^[13]

Some of her successful movies as supporting actress in this period were Ilzam (1954), Pehli Jhalak (1955), Bandish (1955), Azaad (1955), Halaku (1956), Son of Sinbad (1955), Raj Tilak (1958), Khazanchi (1958), Ghar Sansar (1958), Aakhiri Dao (1958), Kangan (1959), Bhai-Bahen (1959) and Dil Apna Aur Preet Parai (1960). The rest of her films released from 1952 to 1960 were deemed as commercial failures. In the period 1962 to 1970, her comedy and vamp roles made an impact in successful films such as Half Ticket, Ishaara, Jab Jab Phool Khile, Preet Na Jane Reet, Aamne - Saamne, Upkar, Ittefaq, Sajan, Doli, Raja Saab and The Train.

In the early 1970s, she started getting roles of mother to heroes like in Purab Aur Paschim and Adhikar. She won the BFJA Award as Best Supporting Actress for Samaj Ko Badal Dalo (1971).^[14] That's when she decided to get married. She married an aspiring director named Sultan Ahmed. Shammi had lots of friends in the industry and because of her, Ahmed got entry into the film industry and everybody worked with him. Her own friends like Rajesh Khanna, Sunil Dutt and Asha Parekh started working in films directed by Sultan Ahmed and these films were successful. Her husband's directorial ventures such as Heera (1973), Dharam Kanta, and Daata were successful. Shammi made a mistake by not accepting offers from other directors, and due to this she started getting fewer offers to act in films in the period between 1972 and 1979.

T. Ahmed and Shammi did not have any children. Shammi was married to him for seven years, during which Shammi had two miscarriages. The couple had bought a house and her husband wanted to put the house in her name, but Shammi was of the opinion that since her sister-in law was not doing anything, Ahmed should put the house in his sister's name. Ahmed's brother in law's family resided with them. Sultan's brother's wife was uneducated, so Shammi took care of the child. Shammi admitted the child in a school in Shimla. Due to some differences, she broke up with her husband in 1980. She walked out of the house without any cash in hand, and left without her car too.^[15][16] She had the old house where she stayed with her mother in Bandra, so she shifted there. Nargis Dutt was upset when Shammi separated from her husband. Dutt helped Shammi get a role in The Burning Train within 8 days after Shammi had left her house. Her friend Rajesh Khanna helped her get small roles in films with him in the lead from 1980 such as Red Rose (film), Aanchal, Kudrat, Awara Baap and Swarg. These films again got her noticed as a supporting actress and hence revived her career.

Encouraged by her recent successes, she decided to produce a film named Pighalta Aasman in 1985. Rajesh Khanna was going to act in the film, and he suggested the director (Esmayeel Shroff), who came on board. There was reportedly an altercation between Esmayeel and Khanna, after which Khanna walked out of the film. It had still not gone on the floors then. But because Rajesh Khanna was acting in the film, she had brought in a big actress, Raakhee. The distributors were after Shammi as she had promised them Rajesh Khanna. She then approached Shashi Kapoor. On this topic, she quoted in an interview: "He (Shashi Kapoor) did not even ask me how much I was going to pay him. Everything fell in place. But the director sucked the life out of me. He fought with everyone on the sets. Ultimately, he was thrown out of the film before the dubbing was completed. I directed the film. The film bombed at the box office. I knew it would flop. I went into a big loss."^[17]

To help her recover from the losses, Rajesh Khanna, who was producing television series then, helped Shammi get a few shows to produce on Doordarshan.^[18] She was getting paid well for her roles in the films and in television serials and she started saving money. From her very first movie, she never went asking for work—the work came to her through some close friend. Her performances got lots of appreciation in serials such as Dekh Bhai Dekh, Zabaan Sambhal Ke, Shriman Shrimati, Kabhi Yeh Kabhi Woh and Filmi Chakkar.^[19] She was very much in demand from 1990 to 2000, appearing in many successful films such as Coolie No 1, Hum, Mardon Wali Baat, Gurudev, Gopi Kishan, Hum Saath-Saath Hain and Imtihaan. Her portrayal of the role of a drug addict in Mahesh Bhatt's Lahu Ke Do Rang had stunned the audience.^[13] Movie offers, however, stopped coming to her after 2002 since she was aging. She was rarely approached for roles from 2008 to 2011.

She made a comeback with Shirin Farhad Ki Toh Nikal Padi in 2013; as Bela Sehgal, the director, wanted her to do it because it was the role of a Parsi woman.^[20] In this film, Daisy Irani, who had worked with Shammi in her first film as a child artist for the film Bandish in 1955, played her daughter-in-law.