Her mother, Johanna Maria van der Gheynst, a servant of Charles de Lalaing, Seigneur de Montigny, was a Fleming. Margaret was brought up by the Douwrin family, and later by her great-aunt, Archduchess Margaret of Austria, and her aunt, Maria of Austria, who were successively governors of the Netherlands from 1507 to 1530 and from 1530 to 1555, respectively. In 1533 she was acknowledged by her father and allowed to assume the name Margaret of Austria.
In 1527, in the year she turned five, she became engaged to the Pope's nephew, Alexander de Medici, Duke of Florence. On 29 February 1536 she married her betrothed but he was assassinated in 1537. On 4 November 1538 she became the wife of Ottavio Farnese, Duke of Parma, the grandson of Pope Paul III. He was thirteen years old, she sixteen. The union, which proved an unhappy one, produced twin sons, one of whom died in infancy.
Like her aunts, who trained her, Margaret was a woman with many abilities. Philip II acted wisely in appointing her governor of the Netherlands when he left them in 1559 for Spain. In ordinary times she would probably have proved as successful a ruler as her two predecessors in that post, but her task was very different from theirs. She had to face the rising storm of discontent against the Inquisition and Spanish despotism, and Philip left her but nominal authority. He was determined to pursue his own arbitrary course, and the issue was the revolt of the Netherlands.
In 1567 Margaret resigned her post into the hands of the duke of Alva and retired to Italy. She had the satisfaction of seeing her son Alexander Farnese appointed to the office she had laid down, and to watch his successful career as governor-general of the Netherlands. She died in Ortona in 1586.