Michael Murphy was born in Los Angeles, California, to Georgia Arlyn (née Money), a teacher, and Bearl Branton Murphy, a salesman. After a hitch in the Marine Corps, Murphy attended the University of Arizona, Tucson, and then went to U.C.L.A. for his California teaching credential. From 1962 to 1964, he taught high school English and drama in Los Angeles.

Murphy's most notable appearance was as Woody Allen's best friend Yale, the self-tortured adulterer, in Allen's masterpiece Manhattan (1979). The two had acted together earlier in Martin Ritt's The Front (1976) and had become good friends. Surprisingly, despite the excellent performance Murphy gave in the film, Allen hasn't used him again.