Lee studied at the Royal Albert Hall, then debuted in 1932 with a bit part in the film His Lordship. When she and her first husband, director Robert Stevenson, moved to Hollywood she became associated with John Ford, appearing in several of his movies, notably How Green Was My Valley, Two Rode Together and Fort Apache. She was also a member of the Val Lewton stock company, appearing in his classic 1946 film Bedlam. She had a lead role opposite Brian Donlevy and Walter Brennan in Fritz Lang's Hangmen Also Die! (1943), a wartime thriller about the assassination of Reinhard Heydrich.

Lee made frequent appearances on television anthology series in the 1940s and 1950s, including Robert Montgomery Presents, The Ford Theatre Hour, Kraft Television Theatre, Armstrong Circle Theatre and Wagon Train.

She had a small, but memorable, role as Sister Margaretta in The Sound of Music. Sister Margaretta was a supporter of Maria in the abbey and was one of the two nuns who thwarted the Nazis by removing car engine parts, allowing the Von Trapps to escape. Lee also appeared in the 1962 camp classic What Ever Happened to Baby Jane? as next-door neighbor Mrs. Bates alongside Joan Crawford and Bette Davis. In 1994, she took the leading role of the feature film What Can I Do?, directed by Wheeler Winston Dixon.

In later years, she became known to a new generation as the matriarch "Lila Quartermaine" on General Hospital and Port Charles until her sacking in 2003, which was widely protested in the soap world and among General Hospital actors. According to fellow GH actress Leslie Charleson, Lee was promised a job for life by former GH executive producer Wendy Riche; when Riche left the show, the new management fired Lee. Charleson said in 2007, "The woman was in her 90s. And then when the new powers-that-be took over they fired her, and it broke her heart. It was not necessary."

One of her sons attested that the firing sapped Lee's will to live. She died not long afterwards of pneumonia. Lee was interred at Westwood Village Memorial Park Cemetery in Los Angeles, California.

Anna Lee was born in Ightham, Kent, England, the daughter of a clergyman who encouraged her desire to act.

She married her first husband, the director Robert Stevenson, in 1934 and moved to Hollywood in 1939. They had two daughters, Venetia and Caroline. Venetia Stevenson, an actress as well, was married to Don Everly of the Everly Brothers and has three children, Stacy Everly, Erin Everly, and Edan Everly. Lee and Stevenson divorced in March 1944 with both daughters staying with their father.

Lee met her second husband, George Stafford, as the pilot of the plane on her USO tour during World War II. They married on June 8, 1944 and had three sons, John, Stephen and Tim Stafford. Tim is an actor better known by his stage name of Jeffrey Byron. Lee and Stafford divorced in 1964.

Lee's final marriage was to novelist Robert Nathan, (The Bishop's Wife, Portrait of Jennie), on April 5, 1970, and to whom she was married until his death in 1985.

Lee was the goddaughter of Sir Arthur Conan Doyle and lifelong friend of his daughter, Dame Jean Conan Doyle. Her brother Sir John Winnifrith was a senior British civil servant who became permanent secretary at the Ministry of Agriculture.