The daughter of a farming family in Buckland, Massachusetts, Lyon had a hardscrabble childhood. Her father died when she was five, and the entire family pitched in to help run the farm. Lyon was thirteen when her mother remarried and moved away; she stayed behind in Buckland in order to keep the house for her brother Aaron, who took over the farm. She attended various district schools intermittently and, in 1814, began teaching in them as well. Lyon's modest beginnings fostered her lifelong commitment to extending educational opportunities to girls from middling and poor backgrounds.

During these early years, Lyon gradually developed her vision for Mount Holyoke Female Seminary, which would resemble Grant's schools in many respects but, Lyon hoped, draw its students from a wider socioeconomic range. The college was unique in that it was founded by people of modest means and served their daughters, rather than the children of the rich. She was especially influenced by Reverend Joseph Emerson, whose Discourse on Female Education (1822) advocated that women should be trained to be teachers rather than "to please the other sex."

In 1834, Laban Wheaton and his daughter-in-law, Eliza Baylies Chapin Wheaton, called upon Mary Lyon for assistance in establishing the Wheaton Female Seminary (now Wheaton College) in Norton, Massachusetts. Miss Lyon created the first curriculum with the goal that it be equal in quality to those of men's colleges. She also provided the first principal, Eunice Caldwell. Wheaton Female Seminary opened on 22 April 1835, with 50 students and three teachers. Mary Lyon and Eunice Caldwell left Wheaton, along with eight Wheaton students, to open Mount Holyoke Female Seminary.

Mount Holyoke opened in 1837: the seminary was ready for "the reception of scholars on November 8, 1837." Lyon strove to maintain high academic standards: she set rigorous entrance exams and admitted "young ladies of an adult age, and mature character." In keeping with her social vision, she limited the tuition to $60/year, about one-third the tuition that Grant charged at Ipswich Female Seminary, which was central to her mission of "appeal[ing] to the intelligence of all classes."

Lyon died of erysipelas (possibly contracted from an ill student in her care) on March 5, 1849. Lyon was buried on the Mount Holyoke College campus, in front of Porter Hall and behind the Amphitheatre. Her burial site is marked with a granite marker surrounded by an iron fence.

Many buildings have been named in her honor, including Mary Lyon Hall at Mount Holyoke College. Built in 1897 on the site of the former Seminary Building, the hall houses college offices, classrooms, and a chapel. The main classroom building for Wheaton Female Seminary, originally called New Seminary Hall, was renamed Mary Lyon Hall in 1910 and still features prominently on the campus of Wheaton College. Dormitories named after Mary Lyon can also be found at Miami University, Plymouth State University in New Hampshire, Swarthmore College, and University of Massachusetts Amherst. Mary Lyon Elementary School in Tacoma, Washington is named after her.

In 1905, Lyon was inducted into the Hall of Fame for Great Americans in the Bronx, New York. She is also honored in the National Women's Hall of Fame in Seneca Falls, New York.

Conforti (1993) examines the central importance of religion to Lyon. She was raised a Baptist but converted to a Congregationalist under the influence of her Teacher Reverend Joseph Emerson. Lyon preached revivals at Mount Holyoke, spoke elsewhere, and, though not a minister, was a member of the fellowship of New England's New Divinity clergy. She played a major role in the revival of the thought of Jonathan Edwards, whose works were read more frequently then than in his day. She was attracted by his ideas of self-restraint, self-denial, and disinterested benevolence.

In order to keep costs low, Lyon required students to perform domestic tasks—an early version of work/study. These tasks included preparing meals and washing floors and windows. Emily Dickinson, who attended the Seminary in 1847, was tasked with cleaning knives. Though Lyon's policies were sometimes controversial, the seminary quickly attracted its target student body of 200.