Born and raised in Scarborough, Gibson began writing in the early 1970s to document her struggle with mental illness. (Biographical references are, however, in conflict as to whether Gibson suffered from schizophrenia or bipolar disorder.)
Gibson was married in the early 1970s to Stuart Gilboord, with whom she had one son, Aaron. Following their divorce, Gibson moved in with her longtime friend Craig Russell. Gibson wrote the short story "Making It", published in her 1976 debut collection The Butterfly Ward, based on her experiences living with Russell. That story was later made into the feature film Outrageous! directed by Richard Benner. Benner also produced the feature film Too,Outrageous! ten years later, also based on Gibson's story. "Ada", another story in the collection, was the basis of a CBC Television movie directed by Claude Jutra. It was Jutra's first English-language film production.
Gibson published three further collections of short stories before releasing her first novel, Opium Dreams, in 1997. Opium Dreams was a winner of the Books in Canada First Novel Award, and Gibson subsequently published one more book.
Later Gibson lived with and shared a house with Juris Rasa, her second husband and her beloved cat, Garbo. Gibson is survived by her lifelong close friends, Shirley Flavelle and author/film director Stephen Jon Postal. Postal and his wife, Guia Dino Postal, chronicled Gibson's teen-age life in the novel, Of Margaret and Madness: A Novel Inspired By True Events (ISBN 9781434332752).
A made-for-TV-film, For the Love of Aaron, was produced in 1994 about her custody battle for her son, Aaron with her ex-husband, Stuart Gilboord; Margaret Gibson was portrayed by actress Meredith Baxter.