Her paternal grandparents were Federico II Gonzaga, Duke of Mantua and Margherita Paleologa, ruling Marquise of Montferrat.
She was named after both her paternal grandmother and maternal aunt Archduchess Barbara of Austria, Duchess consort of Ferrara, Modena and Reggio.
[3] Alfonso II d'Este was twice a widower; his two previous wives, Lucrezia de' Medici and Barbara of Austria (Margherita's maternal aunt), died without giving birth to an heir.
In 1567 the Papal Bull Prohibitio alienandi et infeudandi civitates et loca Sanctae Romanae Ecclesiae of Pope Pius V prohibited illegitimate children (or their descendants) from being invested in Church fiefdoms; without any other close agnate apart from his cousin Cesare d'Este (whose father was an illegitimate son of Alfonso I d'Este, Duke of Ferrara) and with the fear that his family could lose the Duchy of Ferrara, Duke Alfonso II decided he must contract a third marriage.
[3] In order to please his young wife, Duke Alfonso II reorganized the concerto delle donne, which before her time had been a group of singing aristocratic courtiers.
The ensemble consisted of three sopranos: Laura Peverara, Livia d'Arco, Anna Guarini and Vittoria Bentivoglio;[6] In addition, there were also players of harp, viola and lute, bass Giulio Cesare Brancaccio (later replaced by bass Melchiore Palontrotti); the harpsichord was played by Luzzasco Luzzaschi and the archlute and Bandora were played by Ippolito Fiorini.
[7] This groundbreaking female-only dance group was called balletto delle donne; they performed not only at the Duchess's balls, but also at other events,[10] for example, at the wedding of the composer Carlo Gesualdo, Prince of Venosa and Eleonora d'Este (cousin of Margherita's husband) in 1594.
[13] One ballet was composed and performed in honor of the marriage, on 22 February 1581, of Laura Peverara, who was very highly esteemed by the Ducal couple.
As she grew older, the Duchess began to take part in charitable works, such as founding the Orphanage of Saint Margaret in Ferrara, for the maintenance of which a special tax on the oil trade was introduced in the Duchy.
[3] However, most of the movable property of the Ducal Palace of Ferrara and the adjacent garden remained in the ownership of the House of Este and passed to Margherita, now Dowager Duchess.
In 1603, Margaret decided to found a new monastery for another group of tertiary Franciscan women on the outskirts of Pradella, assigning for it maintenance of 25,000 ducats.
On 21 October 1608, the Dowager Duchess settled in this monastery, but without taking monastic vows; she founded her court here, parallel to her brother's in the Ducal Palace.
Under her, the Church of Sant'Orsola became a place where princesses from the House of Gonzaga and girls from local aristocratic families received a good education.
[3][20] In the last years of her life, Margherita devoted more time to prayer, but continued to pay close attention to the political situation of the Duchy of Mantua.
Following the banishment of Margaret of Savoy, who had acted as Regent, the new Duke entrusted to his aunt Margherita the care of Francesco IV's only surviving child, 3-year-old Maria Gonzaga, rightful heiress of the Duchy of Montferrat.