The daughter of Hajo Holborn, a professor of European history who fled to America from Nazi Germany, and of Annemarie Bettmann, a philologist, she graduated from Bryn Mawr College and travelled to Oxford as a Fulbright Scholar. She met and married Charles Montgomery Gray in 1954 while both were graduate students at Harvard University, earned a Ph.D. from Harvard in 1957, and taught there, becoming an assistant professor in 1959.
She moved to Chicago when her husband obtained a position at the University of Chicago and she herself obtained a position there, becoming a tenured faculty member in 1964. From 1966-1970, she served as a coeditor of the Journal of Modern History with her husband, Charles.
Gray came to prominence as an administrator when she was appointed to a committee to investigate whether a sociology professor had been denied tenure because of her gender and political sympathies.
She was named Dean of the College of Arts and Sciences at Northwestern University in 1972, and became professor of history at, and Provost of, Yale University in 1974. She was acting President of Yale University for fourteen months.
Gray then returned to the University of Chicago serving as president from 1978 to 1993, and, in that capacity, was the first female (full) president of a major university in the United States.
She retired in June 1993 but remains Harry Pratt Judson Distinguished Service Professor Emerita and continues to offer advanced undergraduate and graduate courses in history.
She also has served as a Director, Board Member or Trustee of various institutions, including the Harvard Corporation, the Yale Corporation, the Smithsonian Institution, JP Morgan Chase, the Andrew W. Mellon Foundation, the Marlboro School of Music, the Council on Foreign Relations, the Concord Coalition, the Mayo Clinic, the Brookings Institution, and Bryn Mawr.
Gray is currently the Chairman of the Board of the second largest foundation in America, the Howard Hughes Medical Institute.