Born in Magdeburg, Germany as Margarethe Schippang, she received private acting lessons with the theatre actor Hans Calm in Dessau. In 1912 she made her stage debut in Bad Freienwalde. Shortly thereafter, she received a commitment at the municipal theater of Bromberg (now, Bydgoszcz, in present-day Poland). From 1915 to 1918 she was part of the ensemble cast of the Deutsches Theater in Hanover, and from 1918 to 1945 she performed at the Staatstheater Berlin.
In 1919, Margarete Schön made her film debut in the Carl Wilhelm-directed Du meine Himmelskönigin. She would spend the next two years in several small roles for directors Carl Froelich, Hanna Henning, Alfred Halm, Walter Schmidthässler and her husband, director Robert Dinesen before earning a starring role in Urban Gad's 1922 drama Hanneles Himmelfahrt.
It was in the 1924 release of Fritz Lang's two-part fantasy serial Die Nibelungen that she would cement her popularity in Germany and achieve international recognition as an actress. Co-written by Lang's then-wife Thea von Harbou, the films were based on the epic poem Nibelungenlied written around AD 1200. Schön had a starring role as the vengeful Kriemhild, opposite actor Paul Richter's role as the epic hero Siegfried.

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