Born in Bramhall, Cheshire, the daughter of Frank Watkin Hiller and Marie Stone, her professional career as an actress was in repertory at Manchester in the early 1930s. She first found success as Sally Hardcastle in the stage version of Love on the Dole in 1934. She made in her West End debut in the play in 1935, and married the play's author Ronald Gow in 1937. The popularity of Love on the Dole took the production to New York in 1936, where her performance attracted the attention of George Bernard Shaw. Shaw cast her in several of his plays, including Saint Joan, Pygmalion and Major Barbara. She was reputed to be Shaw's favorite actress of the time. Unlike other stage actresses of her generation, she did relatively little Shakespeare, preferring the more modern dramatists such as Henrik Ibsen and new plays adapted from the novels of Henry James and Thomas Hardy among others.

At Shaw's insistence, she starred as Eliza Doolittle in the film Pygmalion (1938) with Leslie Howard as Professor Higgins. This performance earned her a first Oscar nomination and became one of her most famous film roles. She followed up this success with another Shaw adaptation, Major Barbara, in 1941, and starred in the 1945 Powell & Pressburger classic I Know Where I'm Going!. She won the Oscar for Best Supporting Actress in 1959 for the film Separate Tables (1958), as a lonely hotel manageress and was nominated again for her performance as Dame Alice (wife of Sir Thomas More) in A Man for All Seasons (1966). The southern gothic Toys in the Attic (1963) earned her a Golden Globe nomination as a doting spinster sister. The tragic and abused colonial wife in Outcast of the Islands (1952), the possessive mother in Sons and Lovers (1960), the wonderfully grotesque class-conscious Russian princess in Murder on the Orient Express (1974) and the formidable hospital matron in The Elephant Man (1980) were also considered particularly memorable.

In the course of her stage career, Wendy Hiller won popular and critical acclaim in both London and New York. She excelled at rather plain but strong willed characters. After touring England as Viola in Twelfth Night (1943) she returned to the West End to be directed by John Gielgud in Cradle Song (1944). The string of notable successes continued with The First Gentleman (1945), Playboy of the Western World (1946), Tess of the d'Urbervilles (1946), The Heiress (1947 Broadway, 1950 West End), Waters of the Moon (1951), Flowering Cherry (1958 London, 1959 Broadway) and The Aspern Papers (1962 Broadway). She was nominated for Broadway's Tony Award in 1958 as Best Dramatic Actress for her performance as Josie Hogan in Eugene O'Neill's A Moon for the Misbegotten.

As she matured, a strong affinity for the plays of Henrik Ibsen was demonstrated as Irene in When We Dead Awaken (Cambridge, 1968), as Mrs. Alving in Ghosts (Edinburgh, 1972), Aase in Peer Gynt (BBC, 1972) and as Gunhild in John Gabriel Borkman (Old Vic, 1975), in which she appeared with Ralph Richardson and Peggy Ashcroft. Later West End triumphs such as Queen Mary in Crown Matrimonial (1972) proved she was not limited to playing dejected, emotionally deprived women. Some earlier plays were later revisited as older characters such as West End revivals of Waters of the Moon (1978) with Ingrid Bergman and The Aspern Papers (1984) with Vanessa Redgrave.

Wendy Hiller was created an Officer of the British Empire (OBE) in 1971 and raised to Dame Commander (DBE) in 1975. Regarded as one of Britain's great dramatic talents, her style was disciplined and unpretentious, and she disliked personal publicity. The writer Sheridan Morley described Dame Wendy as being remarkable in her "extreme untheatricality until the house lights went down, whereupon she would deliver a performance of breathtaking reality and expertise".

Dame Wendy's final West End performance was the title role in Driving Miss Daisy in 1988. She made many notable television appearances in the 1980s, including Miss Morrison's Ghosts (1981) and the BBC dramatization of the Vita Sackville-West novel All Passion Spent (1986). Her last film appearance, before retiring from acting, was the title role in The Countess Alice (1992) with Zoe Wanamaker.

She died of natural causes at her home in Beaconsfield, aged 90.