Pritzker was born to a Jewish family in Chicago, Illinois, the daughter of Audrey (née Gilbert) and Robert Pritzker. She has two siblings: Jennifer N. Pritzker (b. James, 1950), a retired Lt Colonel in the U.S. Army and founder of the Pritzker Military Library, and Linda Pritzker (b. 1953). Her parents divorced in 1979. In 1981, her mother remarried Albert B. Ratner, the co-chairman of Cleveland-based real estate developer Forest City Enterprises. In 1980, her Father remarried to Irene Dryburgh with whom he had two children: Matthew Pritzker and Liesel Pritzker Simmons.

Her Father Diversified the Chicago-based family Business, the Marmon Group - along with his brothers Jay Pritzker and Donald Pritzker - building it into a portfolio of over 60 Diversified industrial corporations. They also created the Hyatt Hotel chain in 1957 and owned Braniff Airlines from 1983–1988. The family has been divesting its assets: in 2006, the family sold Conwood, a smokeless tobacco company, for $3.5 billion to cigarette company Reynolds American Inc; in 2007, the family sold control of the Marmon Group to Warren Buffett's Berkshire Hathaway for $4.5 billion; and in 2010, the family sold its majority stake in Transunion, the Chicago-based credit reporting company, for an undisclosed amount to Chicago-based private-equity firm Madison Dearborn Partners.

Pritzker graduated with a B.A. from Northwestern University. Pritzker worked as an Editor at Working Mother before the family sold it in 1986 and has written for various publications including SUCCESS (magazine), Seventeen (magazine), Kirkus Reviews and Newsday. Pritzker invests her wealth through an investment portfolio, the Pritzker/Vlock family office using a buy-and-hold approach: their largest holdings are the family Business, Hyatt, and Apple, Inc. Pritzker also operates a venture fund, LaunchCapital LLC with a core focus in the Technology, consumer and medical businesses.

Pritzker co-founded The My Hero Project with Rita Stern Milch in 1995. The purpose of the effort is to offset the lack of positive role Models in the media and "celebrate the best of humanity and empowers young people to realize their own potential to effect positive change in the world".

Pritzker and her husband donated $20 million to the Yale University School of Medicine. (including $3 million to endow a professorship); $5 million to Teach for America; $1.5 million to the Michael J. Fox Foundation for Parkinson's Research, in honor of her Father who had Parkinson's disease. In 2007, Pritzker donated $1 million to build a new visitor center at the Treblinka concentration camp. Karen also funded a new website named Truth in Advertising (TinA), tina.org, that provides information about incidents of false advertising.