De Carlo was born Margaret Yvonne Middleton on September 1, 1922, at St. Paul's Hospital in Vancouver, British Columbia, Canada. Her nickname was "Peggy" because she was named after the silent film star Baby Peggy. Her mother, Marie De Carlo (August 28, 1903 – December 19, 1993), was born in France to a Sicilian Father and a Scottish mother. Marie, a "wayward and rebellious" teenager, had aspired to become a Dancer and worked as a milliner's apprentice until she met Peggy's Father, william Shelto Middleton, a salesman from New Zealand with "piercing eyes of pale blue, and a wealth of straight black hair." Marie and william had married in Alberta, where they lived for a couple of months before returning to Vancouver. They moved in with Marie's parents, but the marriage was troubled. Peggy had only two memories of her father: climbing up to his knee and crawling towards his feet. By the time Peggy was three, william was involved in various swindles and fled Canada aboard a schooner, promising to send for his wife and child. Marie and Peggy never heard from him again; rumors said that he remarried twice and had more children, worked as an actor in silent films, or died aboard a ship. Peggy later wrote, "My own assumption is that he died before he had the chance to discover that his Baby Peggy had become a Hollywood Actress, or I think he would have tried to contact me."

De Carlo and her mother made several trips to Los Angeles. In 1940, she won second place in the Miss Venice beauty contest. She also came in fifth in a 1940s Miss California competition. At the Miss Venice contest, she was noticed by a booking agent who told her to audition for an opening in the chorus line at the Earl Carroll Theatre on Sunset Boulevard in Hollywood. De Carlo and her mother arrived at Earl Carroll's for the audition, but after learning that Carroll would have to examine her "upper assets" before hiring her, De Carlo and her mother searched for work at another popular Hollywood nightclub, the Florentine Gardens. They met Nils Granlund, the proprietor of the Florentine Gardens, who introduced De Carlo to the audience before she tap danced to "Tea for Two". Granlund then asked, "Well, folks . . . is she in or out?" The audience responded with "a rousing round of applause, with whistles and cheers," and De Carlo got the job. She started in the back of the chorus line, but after months of practice and hard work, Granlund featured her in a "King Kong number." In it, she danced and cast off several chiffon veils before being carried away by a gorilla. She was given more solo routines and also appeared in her first soundie. She had been dancing at the Florentine Gardens only a few months when she was arrested by immigration officials and deported to Canada in late 1940. In January 1941, Granlund sent a telegram to immigration officials pledging his sponsorship of De Carlo in the U.S., and affirmed his offer of steady employment, both requirements to reenter the country.

In December 1941, she was dancing in the revue Glamour Over Hollywood at Florentine Gardens. America's entry into World War Two saw De Carlo and other Florentine Dancers busy entertaining troops at USO shows.

Her scenes in Lucky Jordan (1942) were deleted but she had a small role in For Whom the Bell Tolls (1943). She could also be seen in Let's Face It (1943), So Proudly We Hail! (1943) and Salute for Three (1943), She was also kept busy in small roles and helping other actors shoot tests. "I was the test queen at Paramount," she said later. But De Carlo was ambitious and wanted more. "I'm not going to be just one of the girls," she said.

Paramount loaned her out to Republic again for the part of Wah-Tah, the young Native American maiden, in the Deerslayer (1943), an adaptation of the 1841 novel by James Fenimore Cooper. An important supporting role, it was her first credited appearance in a feature film. She returned to Paramount for an unbilled bit in True to Life (1943) and Standing Room Only (1944). De Carlo was billed in a short, Fun Time (1944) and went to MGM to play another "native" part (unbilled) in Kismet (1944).

Wanger tested De Carlo several times and Universal signed her to a long term contract at $150 a week. In September 1944, it was announced De Carlo was cast in the lead of Salome over a reported 20,000 other young women.

De Carlo was screen tested by Universal, who were looking at a back up star for Acquanetta, who was their back up star to Maria Montez. The test was seen by Walter Wanger who was making an adventure film in technicolor, Salome, Where She Danced (1945). Wanger would later claim he discovered De Carlo when looking at footage for another actor in which De Carlo also happened to appear (Milburn Stone).

Salome, Where She Danced was released by Universal who signed de Carlo to a long-term contract. She was used by the studio as a backup star to Maria Montez, and her second movie for the studio saw her step into a role rejected by Montez: the Western Frontier Gal (1946) alongside Rod Cameron. In 1946, exhibitors voted De Carlo the ninth-most promising "star of tomorrow." Like Salome, it was shot in Technicolor.

De Carlo's name was linked with a number of famous men through her career, including Howard Hughes, and Robert Stack. In 1947, she announced her engagement to actor Howard Duff, her co-star in Brute Force (1947) and Calamity Jane and Sam Bass (1949), but they never married. She was engaged three more times—to American stuntman Jock Mahoney, English Photographer Cornel Lucas, and Scottish actor Richard Urquhart—but felt "trapped" whenever she looked at the engagement ring on her finger. While engaged to Mahoney, De Carlo became pregnant and also discovered she had a large ovarian cyst. The tumor was surgically removed and, as a result, she lost the baby. Her relationship with Mahoney ended when De Carlo found out he was seeing another woman, Actress Margaret Field.

She romanced Tony Martin in Casbah (1948), a musical remake of Algiers (1938) made for Martin's own production company but released through Universal. De Carlo was reluctant to be in it because, although she would receive top billing over Martin, she was not given the female lead—that part went to Swedish newcomer Märta Torén—but studio head william Goetz insisted. De Carlo played Inez, the role played by Sigrid Gurie in the 1938 version, and sang the film's song "For Every Man There's a Woman", which was nominated for the Academy Award for Best Original Song. It flopped at the box office, de Carlo's first flop since becoming a star.

De Carlo was keen to make more movies along this line but Universal put her back in Technicolor Westerns with Calamity Jane and Sam Bass (1949), playing Calamity Jane, directed by Sherman, alongside Howard Duff.

In 1950, De Carlo purchased an eleven-room ranch house on five-and-a-half acres of "hilly woodland" on Coldwater Canyon Drive in Studio City, Los Angeles, above Beverly Hills. De Carlo described it as her "dream home" and hired an Architect to help her design "an English-style dining room, with paneling and stained-glass windows." She also built stables for her horses and a large swimming pool. She sold the property in 1975.

In August 1951, De Carlo became the first American film star to visit the State of Israel, giving concerts in Haifa, Ramat Gan, Jerusalem, Tel Aviv, and Jaffa. She drew capacity audiences and was "royally received" by the Israeli government and the public. Her performances consisted of singing and dancing routines from her films. Furthermore, she found that her films were extremely popular there, saying, "Every time I played a concert, someone would yell, 'Sing something from Casbah.'" About the warm reception she received in Israel, she told columnist Louella Parsons:

She went back to Universal for the first movie under her new contract, Scarlet Angel (1952) with Rock Hudson. At Paramount she did Hurricane Smith (1952) then she appeared in "Madame 44" for The Ford Television Theatre (1952). She announced plans to form her own production company with her agent, Vancouver Productions. However, as she later wrote "absolutely nothing" came of this.

She made her third film in Britain with the comedy The Captain's Paradise (1953), as one of two wives a ship captain (played by Alec Guinness) keeps in separate ports. De Carlo played Nita, the sensual wife who lives in Morocco, while Celia Johnson played Maud, the demure wife who lives in Gibraltar. The film was nominated for an Academy Award for Best Story, and The New York Times critic Bosley Crowther commended her performance by writing, "And Miss De Carlo, as the siren, 'the mate of the tiger' in Mr. G. [Guinness], is wonderfully candid and suggestive of the hausfrau in every dame."

She fell in love with stuntman Bob Morgan while visiting the filming of The Ten Commandments in Egypt in 1954. They married in 1955, and their first son, Bruce, was born in 1956. DeMille became Bruce's godfather. Her second pregnancy meant she had to turn down the role of the female pirate DeMille had given her in his next production, The Buccaneer (1958).

De Carlo met stuntman Robert Drew "Bob" Morgan (1915–1999) on the set of Shotgun in 1955, but he was married and had a child, daughter Bari Lee (b. 1947), and De Carlo had "no intention of causing that marriage to break up." However, they met again, after the death of Morgan's wife, on the set of The Ten Commandments in Egypt, where they "seemed immediately attracted to each other." They were married on November 21, 1955, at St. Stephen's Episcopal Church in Reno, Nevada. De Carlo raised Bari as her own and had two sons with Morgan, Bruce Ross (b. 1956), whose godfather was Cecil B. DeMille, and Michael (1957–1997).

It was announced she would team with Vittorio De Sica in an adaptation of The Baker's Wife to be shot in English and Italian but the film was never made. Instead De Carlo co-starred with George Sanders and Zsa Zsa Gabor in Death of a Scoundrel (1956). The New York Times commended her performance as Bridget Kelly: "Yvonne De Carlo does a solid and professional job as the adoring petty thief who rises to eminence with him [Sanders' character]." On the small screen she was in "Skits & Sketches" for Shower of Stars (1957). She was also in Schlitz Playhouse (1957)

De Carlo released an LP record of standards called Yvonne De Carlo Sings on Masterseal Records, a subsidiary label of Remington Records, in 1957. Orchestrated by Future film Composer John Williams under the pseudonym "John Towner," the album contains ten tracks, "End of a Love Affair", "In the Blue of Evening", "I Got It Bad (and That Ain't Good)", "Am I Blue?", "Little Girl Blue", "Blue Moon", "But Not for Me", "My Blue Heaven", "Mood Indigo", "One for My Baby (and One More for the Road)".

In May 1958, De Carlo was signed to play Mary Magdalene in the Italian biblical epic The Sword and the Cross (tentatively titled The Great Sinner and released in the United States as Mary Magdalene), with Jorge Mistral as her love interest, the Roman Gaius Marcellus, and Rossana Podestà as her sister, Martha. The film's Director, Carlo Ludovico Bragaglia, later remembered that "producer, Ottavio Poggi, had sent the provisional script to America, so Yvonne De Carlo could read it and decide on her participation in the film. She read it and got very excited, agreeing to play the role of Magdalene." The film was shot in English and later dubbed in Italian.

De Carlo put together a nightclub act and toured with in South America. She guest starred on Bonanza ("A Rose for Lotta", 1959), Adventures in Paradise ("Isle of Eden", 1960), Death Valley Days ("The Lady Was an M.D", 1961), Follow the Sun ("The Longest Crap Game in History" [1961] and "Annie Beeler's Place" [1962]) and Burke's Law ("Who Killed Beau Sparrow?", 1963). She also played Destry Rides Again in summer stock.

Butch Patrick, who played Herman and Lily Munster's son, Eddie. The on- and off-screen chemistry of De Carlo and Patrick was a success story of 1960s television. After the show's cancelation, like everybody else (in the cast), he also distanced himself from her, to form his own rock band Eddie and The Munsters, years before he either kept in touch or have visited her, during De Carlo's final years, who also said in a 2013 interview with Rockcellar magazine: "Yvonne would be a maternal influence. She'd be a mom because my mom wasn't around so she'd be a matriarch, not only on the show but when I'd see her outside of the makeup on Mondays and Tuesdays. Once in a while she'd bring her kids down to the set." Then, in a 2017 interview with ComingSoon.net, he also said about the Director, who had ever recalled if his TV mother was hiding tiny portions of dialogue, around the set, attaching to props to help jog her memory, where it was added to her performance: "No, not in The Munsters she wasn’t doing that. Maybe later in life. Because sometimes your memory starts slipping on you. But that’s a great idea, actually! I’ll have to remember that!" He also had said if he had ever kept in touch with his on-screen family, after The Munsters was canceled, esp. DeCarlo herself, was: "No, after the show ended, everyone went their own ways. But in the early ’80s, I contacted Al Lewis and we became friends and I started attaching myself to the Munster name and brand. And then 10 years after that I started talking to Yvonne. I was actually a guest on The Vicki Lawrence Show where I was this surprise guest brought out for Yvonne and after that we became friends. I started going up and visiting her and she was somewhat of a recluse, living in North Los Angeles and I introduced her to this guy in Hollywood who would send her care packages, movies to watch and sort of get her back in the loop of Hollywood."

Morgan lost his left leg after being run over by a train while filming How the West Was Won (1962). However, his contract with MGM assumed no responsibility for the accident. De Carlo and Morgan filed a $1.4 million lawsuit against the studio, claiming her husband was permanently disabled. They divorced in July 1973.

To help out, John Wayne offered her the supporting role of Louise Warren, the title character's cook in McLintock! (1963), with Wayne and Maureen O'Hara. She was second billed in a Western Law of the Lawless (1964) and played the Spanish Dancer Dolores in the Bob Hope comedy A Global Affair (1964).

She was in debt by 1964 when she signed a contract with Universal Studios to perform the female lead role in The Munsters opposite Fred Gwynne. She was also the producers' choice to play Lily Munster when Joan Marshall, who played the character (originally called "Phoebe"), was dropped from consideration for the role. When De Carlo was asked how a glamorous Actress could succeed as a ghoulish matriarch of a haunted house, she replied simply, "I follow the directions I received on the first day of shooting: 'Play her just like Donna Reed.'" She sang and played the harp in at least one episode ("Far Out Munsters") of The Munsters.

After the show's cancellation, she reprised the role as Lily Munster in the Technicolor film Munster, Go Home! (1966), partially in hopes of renewing interest in the sitcom. Despite the attempt, The Munsters was cancelled after 70 episodes. Of the sitcom and its cast and crew, she said: "It was a happy show with audience appeal for both children and adults. It was a happy show behind the scenes, too; we all enjoy working with each other." Years later, in 1987, she said: "I think Yvonne De Carlo was more famous than Lily, but I gained the younger audience through The Munsters. And it was a steady job."

After 1967, De Carlo became increasingly active in musicals, appearing in off-Broadway productions of Pal Joey and Catch Me If You Can. In early 1968 she joined Donald O'Connor in a 15-week run of Little Me staged between Lake Tahoe and Las Vegas and she did a five-month tour in Hello Dolly. Later she toured in Cactus Flower.

De Carlo continued to appear in films such as The Delta Factor (1970) and had a notable part in Russ Meyer's The Seven Minutes (1971). The Los Angeles Times said about the latter that De Carlo featured in "an improbable sequence pulled off with verve by the still glamorous star."

Her defining stage role was as "Carlotta Campion" in Harold Prince's production of the Stephen Sondheim musical Follies in 1971-72. Playing a washed-up star at a reunion of old theater colleagues, she introduced the song "I'm Still Here". De Carlo says she was told the part was written especially for her.

In October 1972, De Carlo arrived in Australia to replace Cyd Charisse in Michael Edgley's production of No, No, Nanette. Her opening night was on November 6, 1972 at Her Majesty's Theatre in Melbourne. The show moved on to Adelaide, Sydney, and then to several New Zealand cities. It closed in the fall of 1973, and De Carlo returned to the United States.

In late 1973 and early 1974, she starred in a production of Ben Bagley's Decline and Fall of the Entire World as Seen Through the Eyes of Cole Porter in San Diego.

De Carlo appeared in The Girl on the Late, Late Show (1974), The Mark of Zorro (1974), Arizona Slim (1974), The Intruder (1975), Blazing Stewardesses (1975), It Seemed Like a Good Idea at the Time (1975), Black Fire (1975), and La casa de las sombras (1976).

In May 1975, she starred in the San Bernardino Civic Light Opera's production of Applause at the California Theatre of the Performing Arts. The San Bernardino Sun described her performance as "brilliant" and wrote, "a packed house watched Yvonne De Carlo give a new dimension to Margo Channing, a part she was playing for the first time, but nonetheless, a part she was very well suited for."

De Carlo, a naturalized citizen of the United States, was an active Republican who campaigned for Richard Nixon, Ronald Reagan, and Gerald Ford. A conservative, she stated in a 1976 television interview: "I'm all for men and I think they ought to stay up there and be the bosses and have women wait on them hand and foot and put their slippers on and hand them the pipe and serve seven course meals, as long as they open the door, support the woman, and do their duty in the bedroom, etcetera."

She had a role in the mini series Roots (1977) and was also seen on Satan's Cheerleaders (1977), Nocturna (1979), Guyana: Cult of the Damned (1979), Fuego negro (1979), The Silent Scream (1979) and The Man with Bogart's Face (1980). She guest starred on shows like Fantasy Island.

In 1981, she moved to a ranch in the Santa Ynez Valley, near Solvang, California.

Marie wanted her daughter to have a career in show Business and made sure Peggy received the necessary singing and dancing lessons. Peggy joined the choir of St. Paul's Anglican Church to strengthen her voice, and when she was ten (or three, according to a 1982 interview), her mother enrolled her in the June Roper School of the Dance in Vancouver. In May 1939, a Variety news item listed "Yvonne de Carlo" as one of the performers at the opening of Hy Singer's Palomar ballroom (also known as Palomar Supper Club) in Vancouver.

De Carlo's later films included American Gothic (1988), for which she won the Best Actress Award from International Science Fiction and Fantasy Film Show (Fantafestival); Cellar Dweller (1988); and Mirror Mirror (1990). She had a supporting role as the title character's Aunt Rosa in the Sylvester Stallone comedy Oscar (1991). Aunt Rosa is present when Oscar's Father, played by Kirk Douglas, extracts "a deathbed promise" from his son. Of her role, De Carlo said, "Mine is a small part—but funny."

She was in The Naked Truth (1992), Seasons of the Heart (1993), and "Death of Some Salesmen" in Tales from the Crypt (1993). She had a small cameo role in Here Come the Munsters, a 1995 television film remake of The Munsters. De Carlo, along with Al Lewis, Pat Priest, and Butch Patrick, did not have to wear costumes "because the Munsters have several lives." Her final performance was as Norma, "an eccentric Norma Desmond lookalike," in the 1995 television film The Barefoot Executive, a Disney Channel remake of the 1971 film of the same title. Norma, a former stand-in for film actors, "monkey-sits" the title character, a chimpanzee named Archie who is able to predict top-rated television series. "She has these outrageous costumes—six of them—and it's just a small part," De Carlo told Los Angeles Times. "But I like to do small things now." In 2007, her son Bruce revealed that, before her death, she played supporting roles in two independent films that have yet to be released.

De Carlo suffered a minor stroke in 1998. She later became a resident of the Motion Picture & Television Country House and Hospital, in Woodland Hills, where she spent her last years. She died from heart failure on January 8, 2007, and was cremated.