Elizabeth Kenny was born in Warialda, New South Wales, in 1880, the daughter of Mary (née Moore), a native Australian, and Michael Kenny, a farmer from Ireland. She was called "Lisa" by her family and was home-schooled by her mother before attending schools in New South Wales and Nobby, Queensland. At age 17, she broke her wrist in a fall from a horse. Her father took her to Aeneas McDonnell, a medical Doctor in Toowoomba, where she remained during her convalescence. While there, Kenny studied McDonnell's anatomy books and model skeleton. This began a lifelong association with McDonnell, who became her mentor and advisor. Kenny later asserted that she became interested in how muscles worked while convalescing from her accident. Instead of using a model skeleton, since they were available for medical students only, she made her own. From age 18 until her mid-twenties, she worked as an unaccredited bush nurse in the Clifton district. In 1907, Kenny returned to Guyra, New South Wales, to live with a cousin. While there she claimed to receive basic nursing training from a local midwife, but there is no record of her undertaking formal nursing training. She also brokered agricultural sales between Guyra farmers and northern markets in Brisbane. She was not a member of a religious order; in some Commonwealth nations, the title "sister" is applied to senior qualified Nurses and does not necessarily indicate a religious vocation.

In 1909, Kenny returned to Nobby and assumed the role of a qualified nurse after paying a tailor to make her a nurse's uniform, complete with cap and cape. Using the money she earned by brokering produce in Guyra, she opened a cottage hospital (St. Canice's) in 1911 at Clifton. Kenny provided convalescent and midwifery services at St. Canice's, and treated her first confirmed cases of infantile paralysis (as polio was also known) under the supervision of the local Lodge Doctor.

In 1915, Kenny volunteered to serve as a nurse in the war. She was not officially qualified, but Nurses were badly needed; she was accepted and assigned to "Dark Ships": transports that ran with all Lights off between Australia and England carrying war goods and Soldiers one way, and wounded Soldiers and trade goods on the return voyage. Kenny served on these dangerous missions throughout the war, making sixteen round trips (plus one around the world, via the Panama Canal). In 1917 she earned the title "Sister" (which in the Australian Army Nurse Corps is the equivalent of a first lieutenant), and used that title for the rest of her life. She was criticised by some for doing so (in the British Commonwealth, it was reserved for qualified nurses), but Kenny was officially promoted to that rank during her wartime Service. During the final months of the war, she served for a few weeks as matron in a soldiers' hospital near Brisbane and was honourably discharged and qualified for a pension.

Although exhausted by her war Service, Kenny supervised a temporary hospital in Nobby that had been established to care for victims of the 1919 influenza epidemic. When the epidemic subsided, Kenny travelled to Guyra to recuperate (without success) and returned to Europe to visit doctors there. After her return to Nobby, she was called to Guyra by a girlhood friend to care for her daughter (Daphne Cregan), who was disabled with what was known as cerebral diplegia. Kenny's three years of rehabilitative work with the child, plus her experience with sick and wounded men during World War I, are probably the foundation for her later work in polio treatment and rehabilitation. Elizabeth Kenny adopted a daughter called Mary Stewart, who went on to be one of her top researchers.

When sales of the Sylvia Stretcher declined, Kenny returned to home nursing. During one of her sales journeys, she met a family who arranged for her to visit their station west of Townsville in 1929 to care for their niece Maude, who was disabled by polio. After 18 months under Kenny's care, Maude was able to walk, return to Townsville, marry and conceive a child. The newspapers in Townsville took up the story, referring to it as a cure. In 1932, Queensland suffered its highest number of polio cases in 30 years; the following year, several local people helped Kenny set up a rudimentary polio-treatment facility under canopies behind the Queens Hotel in Townsville. In a few months (after further success with local children), she moved into the bottom floor of the hotel. The first official evaluation of Sister Kenny's work took place in Townsville in 1934, under the auspices of the Queensland Health Department (QHD). This evaluation of her work led to the establishment of Kenny clinics in several cities in Australia. The Sister Kenny Clinic in the Outpatients Building of the Rockhampton Base Hospital is now listed on the Queensland Heritage Register.

Press reports from Australia during the 1930s quote Kenny as saying she developed her method while caring for meningitis patients on troopships during World War I.

Between 1934 and her death in 1952, Kenny and her associates treated only a few thousand patients, but her methods were used to treat many thousands of polio victims throughout the world. Their testimony to Sister Kenny's healing is part of her legacy, as is The Kenny Concept of Infantile Paralysis, and Its Treatment (known as the "Red Book" and written by Dr. John Pohl in collaboration with Kenny). Her most enduring legacy is the Minneapolis Sister Kenny Rehabilitation Institute.

Between 1935 and 1940, Kenny travelled extensively throughout Australia, helping to set up clinics. She also made two trips to England, where she set up a treatment clinic in St. Mary's Hospital near Carshalton; a rehabilitation facility still exists there. Between 1936 and 1938, a Queensland Government Royal Commission evaluated Kenny's work and published its Report of The Queensland Royal Commission on Modern Methods for the Treatment of Infantile Paralysis in 1938. Its most critical comment (because Sister Kenny opposed using splints and plaster casts to immobilise the areas of polio patients affected by the disease) was: "The abandonment of immobilization is a grievous error and fraught with grave danger, especially in very young patients who cannot co-operate in re-education." They stated that her clinic (then in Brisbane) was "admirable". The Commissioners' strongest objections were against the Queensland government, which was funding Kenny's work when her clinic was not under the purview of the BMA. The Queensland Government rejected the report, continuing to support Kenny's work.

During these years, Kenny developed her clinical method and gained recognition in Australia. She was adamantly opposed to immobilising children's bodies with plaster casts or braces. At this time, Kenny requested that she be permitted to treat children during the acute stage of the disease with hot compresses (as she claimed to have done in Clifton before the war). However, doctors would not allow her to treat patients until after the acute stage of the disease or until "tightness" (Kenny used the word "spasm" much later) subsided. She instituted a carefully designed regimen of passive "exercises" designed to recall function in unaffected neural pathways (much as she had done with Maude). On her own, she began treatment of a patient in the acute stage in her George Street Clinic in Brisbane, afterwards transferring her to the Ward 7 Polio Clinic in Brisbane General Hospital. That child (and others) recovered with fewer aftereffects than those placed in braces. In 1937, she published an introductory book about her work and began another (The Treatment of Infantile Paralysis in The Acute Stage), which was later published in the United States. The most comprehensive appraisal of her methods was published in collaboration with Dr. John Pohl in 1943.

Cartoonist and amputee Al Capp was involved with the Sister Kenny Foundation during the 1940s and 1950s. As honorary chairman, Capp made public appearances on its behalf, contributed artwork for its annual fundraising appeals and entertained disabled children in hospitals with pep talks, humorous stories, and sketches.

Kenny claimed in her 1943 autobiography (co-authored by Martha Ostenso) that she treated her first cases of infantile paralysis in 1910 while working alone as a bush nurse in the Clifton district. That episode was romanticised in the 1946 film Sister Kenny, featuring Rosalind Russell (who befriended Kenny). Surveillance records from the early 1900s show that infantile paralysis was a rare disease in Queensland prior to World War I, although there is evidence that subacute cases were brought to Kenny's cottage hospital in Clifton. In her memoir, Kenny claimed she was baffled by the cases she encountered and sought assurance from Dr. Aeneas McDonnell. He wired back, "...treat them according to the symptoms as they present themselves". Sensing that their muscles were tight, she did what mothers around the world did: applied hot compresses and weights made from woollen blankets to their legs. Kenny wrote in her autobiography that a little girl woke up very much relieved and said, "Please, I want them rags that well my legs". Several children recovered with no serious aftereffects. Many years passed before Kenny treated anyone else who might have had polio. The story of Kenny's first encounter with an acute case of polio is a 20th-century medical legend, but there is no documented record other than her memoir. The chief witness to the discovery of her method for treating Poliomyelitis was Aeneas McDonnell, who died before the story was widely publicised.

Her life story was told in the 1946 film Sister Kenny. She was portrayed by Rosalind Russell, who was nominated for the Academy Award for Best Actress for her performance as Kenny.

In Kenny's home village of Nobby, the Sister Kenny Memorial House contains many artefacts from Kenny's life, a collection of documents from her private correspondence, papers and newspaper clippings. In Toowoomba, the Sister Elizabeth Kenny Memorial Fund provides scholarships to students attending the University of Southern Queensland who will dedicate themselves to work in rural and remote areas of Australia. In Townsville, her life was commemorated in 1949 by the unveiling of the Sister Kenny Memorial and Children's Playground.

In recognition of her work, in February 1950, President Harry Truman signed a Congressional bill giving Kenny the right to enter and leave the USA as she wished without a visa. This honour had only been granted once before, to French marquis Gilbert du Motier, Marquis de Lafayette, who was a leader in the American War of Independence.

During this time, Kenny treatment centres were opened throughout America; the best-known were the Sister Kenny Institute in Minneapolis (now Courage Kenny Rehabilitation Institute), a facility in the New Jersey Medical Center and her favourite, the Ruth Home in El Monte, California. She received honorary degrees from Rutgers University and the University of Rochester and lunched with U.S. President Franklin D. Roosevelt, himself a polio sufferer, discussing his treatment at Warm Springs. In 1951, Kenny headed the Gallup Poll's most-admired women's list, the only woman in the first 10 years of the list to displace Eleanor Roosevelt for the #1 spot. The Sister Kenny Foundation was established in Minneapolis to support her and her work throughout the United States.

Kenny's funeral was held on 1 December 1952 at the Neil Street Methodist Church in Toowoomba. The funeral was recorded for transmission in other parts of Australia and in the United States of America. The funeral cortege from the church to Nobby Cemetery was one of the largest seen in Toowoomba. Kenny was buried beside her mother in Nobby Cemetery.

In 2009 as part of the Q150 celebrations, the Kenny regimen for polio treatment was announced as one of the Q150 Icons of Queensland for its role as an iconic "innovation and invention".