Born Mildred Linton in Ottumwa, Iowa, Morley came to prominence in Hollywood films in the early 1930s, most notably in Mata Hari (1931), Scarface (1932), The Phantom of Crestwood (1932), Arsene Lupin (1933), Dinner at Eight (1933), and Pride and Prejudice (1940).
She was discovered by Clarence Brown, director of a number of Greta Garbo movies. At the time Morley was trying out for the film Inspiration. Garbo refused to make tests and someone was needed to wear the star's clothes and speak her lines in preliminary tests. Hedda Hopper worked well in this task until one day she was sick with a cold. Director Brown passed through the waiting throngs outside the casting office when Morley clocked on his mind and caused him to pause. Karen was accompanied by her agent who had been waiting with her for an appointment with Brown for three days. She had been working recently at the Pasadena Playhouse. The sound mixer was impressed with Morley's fine recording voice at the same time that the director was marvelling about her being a wonderful actress.
The long-term contract she secured with MGM owed much to her rich speaking voice and the intelligence which she brought to her film projects. Karen also possessed an ambition to direct plays in the future.
The actress' big break came when producer Howard Hughes selected her to play in Scarface (1932). Following her role in Mata Hari with Greta Garbo, she acted with John Barrymore in Arsene Lupin and Dinner at Eight with Jean Harlow.
In 1934, Morley left MGM after arguments about her roles and her private life. Her first film after leaving MGM was Our Daily Bread (1934) directed by King Vidor. She continued to work without a tie to a particular studio, appearing in Michael Curtiz's Black Fury, and The Littlest Rebel with Shirley Temple. However, her career was going nowhere without a major studio campaign behind her and after 1939, Morley's film appearances were rare.
Her career came to an end in 1947, when she testified before the House Un-American Activities Committee and refused to answer questions about her alleged American Communist Party membership. She maintained her political activism for the rest of her life. In 1954 she ran unsuccessfully for lieutenant governor of New York on the American Labor Party ticket.
After being blacklisted by the Hollywood studio bosses, she was never able to rebuild her acting career. She remained married to Gough until his death in 1984, and she outlived their only child; she moved to the San Francisco Bay area late in life. In December 1999, at the age of 90, she appeared in the magazine Vanity Fair in an article about blacklist survivors.
Among the most promising young actresses in the MGM company, Morley's career failed to deliver the major stardom her talent deserved. Her lack of top-level stardom has been rumored to be the result of studio politics.
Morley was married to director Charles Vidor from 1932 until 1943. Charles was one of the most coveted directors of RKO films. The couple met on the sets of Man About Town, a Warner Baxter movie. Karen had the feminine lead and Vidor was co-director. Vidor and Morley had a son, Michael Karoly, who was born in August 1933. Morley was the only MGM actress during the early 1930s to give birth, other than studio head Irving Thalberg's wife Norma Shearer, which likely did not endear her to studio executives. In 1943 she married the actor Lloyd Gough.