Lopez was born in the Bronx, New York to Francisco Lopez, a hotel banquet foreman and Laura (née Candelaria), who had moved to New York from their native Puerto Rico.
Lopez graduated from Manhattan's High School of Performing Arts, where she majored in drama; her experiences as a drama student are depicted in the musical A Chorus Line. Had Tiffany's survived, it would have marked her debut on Broadway, but the production was plagued with so many problems that its creative team deemed it impossible to fix. From there, she moved on to Henry, Sweet Henry, which lasted only two months at the end of 1967, when she was 19 years old. Her luck was no better the following year when Her First Roman lasted two weeks.
Lopez achieved critical and popular success as a replacement in two shows: Stephen Sondheim's Company (1970), followed by the 1972 hit Pippin in 1974, taking over the role of Fastrada from original performer Leland Palmer. Two years later, she was invited by director and choreographer Michael Bennett to participate in a series of tape-recorded group therapy-style sessions in which chorus boys and girls, AKA "Gypsies," bared their souls and discussed their lives, dreams and frustrations. From these sessions emerged A Chorus Line (1975), and Lopez was invited to join the cast, portraying Diana Morales, a character patterned after herself. She introduced the hit song "What I Did for Love", and sang "Nothing", a song about a disastrously unsupportive drama class at the High School of Performing Arts.

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