Holley was born in Urbana, Illinois, and graduated from Urbana High School in 1938. He went on to study chemistry at the University of Illinois at Urbana-Champaign, graduating in 1942 and commencing his PhD studies in organic chemistry at Cornell University. During World War II Holley spent two years working under Professor Vincent du Vigneaud at Cornell University Medical College, where he was involved in the first chemical synthesis of penicillin. Holley completed his PhD studies in 1947.

Following his graduate studies Holley remained associated with Cornell. He became an Assistant Professor of organic chemistry in 1948, and was appointed as Professor of Biochemistry in 1962. He began his research on RNA after spending a year's sabbatical (1955–1956) studying with James F. Bonner at the California Institute of Technology.

The structure was completed in 1964, and was a key discovery in explaining the synthesis of proteins from messenger RNA. It was also the first nucleotide sequence of a ribonucleic acid ever determined. Holley was awarded the Nobel Prize in Physiology or Medicine in 1968 for this discovery, and Har Gobind Khorana and Marshall W. Nirenberg were also awarded the prize that year for contributions to the understanding of protein synthesis.

In 1968 Holley became a resident fellow at the Salk Institute for Biological Studies in La Jolla, California.