Karen Steele was born in Honolulu, Hawaii, to Percy Davis Steele, a Bostonian of English descent and a career Marine who in 1956 was named assistant administrator of the Marshall Islands.

Her mother was the former Ruth Covey Merritt, a Californian of French and Danish heritage. Childhood in the Hawaiian Islands brought Steele into contact with the Japanese and Polynesian languages as well as English.

She attended the University of Hawaii and studied acting at Rollins College in Florida for a year. After that, she found work as a cover girl and model.

Steele earned her first money by spearing baby sharks in the private cove on the estate of Woolworth heiress Barbara Hutton.

Steele's first acting job was in a radio play titled Let George Do It. She subsequently appeared in the 1953 films The Clown (in an uncredited role) and Man Crazy (as Marge). The following year she landed the role of Millie Darrow in "So False and So Fair" on the television anthology Studio 57.

Her first critically acclaimed film was Marty (1955). She played Virginia and got the part because the director, Delbert Mann, confused her with an actress from New York who he and writer Paddy Chayevsky had intended to play it.

Her character in "Survival of the Fattest", a 1965 episode of Get Smart, was named Mary 'Jack' Armstrong, said to be "the strongest female enemy agent in the world". This is a reference to Jack Armstrong, the clean-cut fictional hero of Jack Armstrong the All American Boy, an adventure series broadcast on radio from 1933 to 1951.

Like many actresses, as she got older she turned to TV commercials for income. She also became involved in charitable causes and community service. In early 1970 she went on a handshake tour of service hospitals in the South Pacific. She turned down a series that would have brought her $78,000 in order to make the trip and in the process lost her agent.

In later life she settled in Golden Valley, Arizona, and married Dr. Maurice Boyd Ruland, a psychiatrist at the Mohave Mental Health Clinic. They were married until she died, aged 56, at the Kingman Regional Medical Center in Kingman, Arizona.