Caldwell began her career in Melbourne in the 1950s and early 1960s, performing with the newly formed Union Theatre Repertory Company (later the Melbourne Theatre Company).

She emigrated to England upon being invited to join the RSC at a time when Charles Laughton was attempting Lear, and Vanessa Redgrave, Eileen Atkins, Albert Finney were among the other newcomers in the company. She played Bianca in the 1959 production of Othello, starring Paul Robeson. Later she played the indomitable Helena, opposite Dame Edith Evans in a production of All's Well That Ends Well. Her career later brought her to America, where she was one of the original company of actors under Guthrie's direction at the Tyrone Guthrie Theatre in Minneapolis. At the Guthrie, she played parts such as Ophelia in Hamlet and Natasha in Three Sisters.

A life member of the Actors Studio, Caldwell has won four Tony Awards for her performances on Broadway in Tennessee Williams' Slapstick Tragedy, The Prime of Miss Jean Brodie, Medea and Master Class. In the last she portrayed opera diva Maria Callas. In Stratford, Ontario she has worked often, including her role as Cleopatra in Shakespeare's Antony and Cleopatra opposite Christopher Plummer's Mark Antony in 1967.

Caldwell graduated from Methodist Ladies' College, Kew and, much later, received an honorary degree from the University of Melbourne. In 1968, she married Canadian-born Broadway Producer Robert Whitehead, a cousin of actor Hume Cronyn. They had two sons and were married until Whitehead's death in June 2002.

Other credits on Broadway include Arthur Miller's The Creation of the World and Other Business in which she played Eve, a one-woman play by william Luce based on the life of Lillian Hellman and a production of Macbeth with Christopher Plummer as Macbeth and Glenda Jackson as Lady Macbeth under Caldwell's direction. Caldwell directed, Off-Broadway, a two-woman play, created by Eileen Atkins, Vita and Virginia, based on the letters between Virginia Woolf and Vita Sackville-West. Atkins played Virginia and Vanessa Redgrave played Vita. Caldwell directed the Broadway production of Othello in the late 1970s with James Earl Jones, Christopher Plummer, and Dianne Wiest. She helmed the American Shakespeare Theatre in Stratford, Connecticut for two limited-run seasons as its Artistic Director in the mid-1980s.

She has also appeared on film, most notably as an imperious dowager in Woody Allen's The Purple Rose of Cairo. In 2002, she starred in the film Just a Kiss. She voiced the character of the Grand Councilwoman in Disney's Lilo & Stitch, and continued voicing the character in the franchise's later films and in Lilo & Stitch: The Series, as well as in Kingdom Hearts Birth by Sleep. She appeared in Extremely Loud & Incredibly Close in 2011.