Safra was born Lily Watkins on December 30, 1934, in Porto Alegre, Brazil, daughter of Wolf White Watkins, a Czechoslovak railway Engineer who moved to South America, and Annita Noudelman de Castro, a Uruguayan of Russian-Jewish ancestry. She grew up in Rio de Janeiro but moved with her family to Uruguay.

At the age of 17, she met and married Mario Cohen, an Argentine hosiery magnate of Italian-Jewish descent. They had three children. Lily and Cohen divorced in the early 1960s.

In 1965, she married Alfredo "Freddy" Monteverde, formerly Greenberg. He was a Romanian Jewish immigrant who was forced to flee Europe in 1939. He was a leader in the Brazilian household appliance distribution Business, where he established the Ponto Frio brand. He and Lily adopted a child. In 1969, Monteverde committed suicide. According to biographer Isabel Vincent, Monteverde left all his assets to his wife.

In 1972, Monteverde married businessman Samuel Bendahan, also a Sephardic Jew but from much more modest means. They separated after two weeks, and she divorced him after one year of marriage.

In 1976, Monteverde married Edmond Safra after all. The prominent banker was of Syrian Jewish (Mizrahi) origin and a naturalized Brazilian citizen. He founded Republic National Bank of New York. The couple divided their time among homes in New York City, Monaco, Geneva, and the Villa Leopolda on the French Riviera.

Lily Safra supports numerous foundations, organizations, and charities. In 1977 she, her husband Edmond Safra, and Nina Weiner founded the International Sephardic Education Foundation. She chairs The Edmond J. Safra Foundation which supports medical research and humanitarian relief. The Edmond J. Safra Foundation Center for Ethics has been established at Harvard; most recently she donated over $12 million to create a cross-disciplinary research laboratory on institutional corruption.

Lady Colin Campbell's novel Empress Bianca (2005) was considered to be defamatory by Safra's solicitor Anthony Julius. Reacting to the legal threat in the United Kingdom, its publishers Arcadia withdrew the book and destroyed unsold copies. A revised edition of the book was later published in the United States.

In 2009, Safra was honored by the Elton John AIDS Foundation with its “An Enduring Vision” award for her long-time support. In October 2013, Safra donated $1 million in support of the foundation's grant-making programs. That same year, Safra contributed $16 million toward Edmond and Lily Safra Children's Hospital in Tel Hashomer. She also donated $5 million toward the One Laptop Per Child project.

L'Homme qui marche I, a life-sized bronze sculpture of a man by Alberto Giacometti was acquired by Safra on 3 February 2010 at an auction in London for £65 million (US$104.3 million), resulting in becoming one of the most expensive works of art and the most expensive sculpture ever purchased.

In May 2012, Christie's Geneva hosted an auction of 70 pieces of Safra’s personal jewelry collection. The 'Jewels for Hope' sale included 18 pieces by JAR, the largest personal collection designed by the jeweler ever to be sold. The entire profits from the sale were donated to 32 charitable institutions around the world in the fields of Health care, education, religion and culture, including the Elton John AIDS Foundation and Hope and Homes for Children in Romania.

In the same year, she promised the Claude Pompidou Foundation a donation of 7 million euros for the construction and completion of the Claude Pompidou Institute for Alzheimer’s research and treatment in the city of Nice, France. The Institute was inaugurated and welcomed its first patients in 2014.