Nye was born Caroline Nye McGeoy in Greenwood, Mississippi; her father was a vice president of a local bank. She attended Stephens College and then went on to the Yale School of Drama. The majority of Nye’s roles were on the stage. She joined the Williamstown Theatre Festival in 1955 and portrayed a number of roles at the festival through the 1960s and 1970s. Among her credits were the leads in The Skin of Our Teeth and A Streetcar Named Desire. She was part of a cast from the American Shakespeare Festival that performed Troilus and Cressida at the White House during the John F. Kennedy administration. She made her debut on Broadway in 1960 with a role in the play A Second String. The following year she portrayed Tiffany Richards in the original cast of Mary, Mary. She was nominated for a Tony Award in 1965 for her portrayal of Helen Walsingham in Half a Sixpence. She appeared in two more productions on Broadway during the 1960s, A Very Rich Woman (1965) and Cop-Out (1969). Nye made her feature film debut in The Group (1966), the film adaptation of Mary McCarthy’s bestselling novel about a group of Vassar College students. The film also starred Joan Hackett, Joanna Pettet, Candice Bergen, Kathleen Widdoes, and Shirley Knight. Nye was featured in a number of television movies during the 1970s, including Screaming Skull and The Users. She acted in the television movie Divorce His, Divorce Hers (1973), which starred Elizabeth Taylor and Richard Burton. Nye wrote a humorous essay that year published in Time about the experience. In 1978, Nye was a semi-regular panelist on the PBS quiz show We Interrupt This Week.

She was nominated in 1980 for an Emmy Award for her portrayal of the actress Tallulah Bankhead – an actress to whom Nye was often compared – in Moviola: The Scarlett O’Hara War. That same year she returned to Broadway to perform the role of Lorraine Sheldon in a revival of The Man Who Came to Dinner. She was nominated for a Drama Desk Award for her performance. In 1984, Nye was cast on the daytime soap opera Guiding Light as Susan Piper, an unscrupulous real estate agent going to great lengths, including murder, to attempt to reclaim a cottage that harbors a deep-seated secret. Her portrayal of the villainous character proved popular for some time, culminating in a location shoot in Barbados, but ended in a memorable death scene where she fell into quicksand. When Nye’s friend Ellen Weston became head writer of Guiding Light in 2003, she created another character for Nye, the mysterious Caroline Carruthers. Despite acclaim for Nye’s performance, this storyline was unpopular, changing the back-story for many of the show’s core characters (whom she had crossed paths with in her first stint) and Nye’s character was written off after six months. Nye played Sylvia Grantham in the classic 1982 horror film Creepshow.

Nye was married to Dick Cavett, whom she met at Yale, from June 4, 1964, until her death. Nye and Cavett bought Tick Hall, a house in Montauk, New York, designed by Stanford White. The house burned down in 1997, but with the assistance of architects and preservationists, she and Cavett built an exact replica of the house. Their accomplishment became the subject of a documentary film From the Ashes: The Life and Times of Tick Hall (2003). Nye died of lung cancer on July 14, 2006, at her Manhattan home. She is interred in the Lutheran All Faiths Cemetery in Middle Village, Queens, New York.