Greenaway spent much of her childhood at Rolleston, Nottinghamshire. She studied at what is now the Royal College of Art in London, which at that time had a separate section for women, and was headed by Richard Burchett. Her first book, Under the Window (1879), a collection of simple, perfectly idyllic verses about children, was a bestseller.
Greenaway's paintings were reproduced by chromoxylography, by which the colours were printed from hand-engraved wood blocks by the firm of Edmund Evans. Through the 1880s and 1890s, her only rivals in popularity in children's book illustration were Walter Crane and Randolph Caldecott.
As well as illustrating books Greenaway also produced a number of bookplates.
"Kate Greenaway" children, all of them little girls and boys too young to be put in trousers, according to the conventions of the time, were dressed in her own versions of late eighteenth century and Regency fashions: smock-frocks and skeleton suits for boys, high-waisted pinafores and dresses with mobcaps and straw bonnets for girls. The influence of children's clothes in portraits by British painter John Hoppner (1758–1810) may have provided her some inspiration. Liberty of London adapted Kate Greenaway's drawings as designs for actual children's clothes. A full generation of mothers in the liberal-minded "artistic" British circles who called themselves "The Souls" and embraced the Arts and Crafts movement dressed their daughters in Kate Greenaway pantaloons and bonnets in the 1880s and 1890s.
Greenaway was elected to membership of the Royal Institute of Painters in Water Colours in 1889. She lived in an Arts and Crafts style house she commissioned from Richard Norman Shaw in Frognal, London, although she spent summers in Rolleston, near Southwell.
Greenaway died of breast cancer in 1901 at the age of 55. She is buried in Hampstead Cemetery, London. The Kate Greenaway Medal, established in her honour in 1955, is awarded annually by the Chartered Institute of Library and Information Professionals in the UK to an illustrator of children's books.