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Townsend was born in Greenwich, Connecticut. She graduated cum laude from Harvard University, receiving her bachelors in history and literature. She then studied at the University of New Mexico law school, receiving her law degree in 1978. For several years she worked as an attorney; following this period, she went to work for the state government of Maryland, holding numerous government posts, including assistant Attorney General. She also served on the State Board of Education, and as a presidential elector in 1992. Following this, she worked for two years in the Clinton administration, as a Deputy Assistant Attorney General. After this stint, she returned to Maryland state government and served as lieutenant governor to Parris Glendening.
In the election of 2002, Townsend ran for the governorship as a Democrat, facing off against Republican Bob Ehrlich and Libertarian Spear Lancaster. She lost the race, gaining 48% of the vote to Ehrlich's 51% and Lancaster's 1%, even though Maryland's partisan balance tilts heavily Democratic. Because of this, she drew heavy criticism from many local Democrats for having run what they viewed as a lackluster campaign. Especially criticized was her choice of running mate; she picked retired Admiral Charles Larson, who had switched parties only weeks before, and was a white male, unlikely to help minority turnout or support for her. In contrast, Ehrlich's running mate was Michael Steele, an African-American lawyer who had been chairman of the state Republican organization.
The oldest of Robert F. Kennedy and Ethel Skakel's 11 children, she is part of the Kennedy political dynasty.