Mills was born in Chicago, Illinois. Her father, Ted Mills, a television executive, died in August 2003. Her stepmother, Genevieve, whose real name was Ginette Marguerite Auger, died in March 2004. Alley's mother, Joan (Paterson) Mills Kerr, an author as well as an Editor for American Heritage Magazine, died in November 1996. Her stepfather was Chester Kerr, former Director of Yale University Press. She has one sister, Hilary Mills Loomis, and one brother, Tony Mills. Her first acting role on television was in the short-lived comedy, The Associates, where she played an attorney, opposite a then-unknown Martin Short.