Born in Seattle, Damon was raised in Tacoma and graduated from Stadium High School, moved to New York City at age 16 to pursue ballet and ultimately appeared in several Broadway productions, including Shinbone Alley, Foxy, Flora, The Red Menace, The Boys from Syracuse, The Last of the Red Hot Lovers, Sweet Bird of Youth and The Cherry Orchard. During the 1967-68 season, she was the Mame and Vera understudy for the Angela Lansbury-led tour of Mame.

Damon became familiar to television viewers as middle-class Mary Campbell on the primetime spoof of daytime soap operas aptly entitled Soap from 1977 until 1981. However, many fans may not know that she was the third and final Actress cast in the role. Producer Tony Thomas states, "Cathryn Damon was brilliant. A lot of people don't know this, but we recast that to put her in it." She later appeared with Soap co-star Eugene Roche on Webster from 1984-86. The pair played Cassie and Bill Parker, Webster's landlords, on the hit series. Other television credits included guest roles on The Love Boat, Fantasy Island, Murder, She Wrote, Matlock, Mike Hammer.

Damon, along with costar and TV husband Richard Mulligan, won an Emmy Award for Soap in 1980 but could not appear in person to receive the Award owing to an actors' strike; Mulligan referred to his friend Damon (whom he affectionately called "Toots") and the strike-related absence when he received his second Best Actor Emmy more than a decade later for his role as Dr. Weston on the television series Empty Nest (Coincidently, Empty Nest debuted a year after Damon's death, with Mulligan playing the part of a widower whose wife died a year earlier).

In 1986, Damon was diagnosed with cancer, but continued acting in small roles up until shortly before her death a year later at age 56, on May 4, 1987. Her final role, as Elizabeth McGovern's mother in the movie She's Having a Baby with Kevin Bacon, was released posthumously. She is interred in Acacia Memorial Park near Seattle.