In 1938 and 1939, Paley attended Hunter College, then, briefly New York University, but she never received a degree. In the early 1940s, Paley studied with W. H. Auden at the New School for Social Research. Auden's social concern and his heavy use of irony is often cited as an important influence on her early work, particularly her poetry.
In a May 2007 interview with Vermont Woman newspaper – one of her last – Paley said of her dreams for her grandchildren: "It would be a world without militarism and racism and greed – and where women don't have to fight for their place in the world."
Though as a story collection by an unknown author, the book was not widely reviewed, those who did review it (including Philip Roth and the The New Yorker book page) tended to rate the stories highly. Despite this initial lack of publicity, The Little Disturbances of Man went on to build a sufficient following leading it to be reissued by Viking Press in 1968, at the time almost unprecedented for a short story collection.
Paley was an important teacher of writing and mentor to emerging writers. She taught writing at Sarah Lawrence College from 1966 to 1989, and helped to found the Teachers & Writers Collaborative in New York in 1967. She also taught at Columbia University, Syracuse University and the City College of New York.
Paley summarized her view of teaching during a symposium on "Educating the Imagination" sponsored by the Teachers & Writers Collaborative in 1996:
"Our idea," Paley said, "was that children—by writing, by putting down words, by reading, by beginning to love literature, by the inventiveness of listening to one another—could begin to understand the world better and to make a better world for themselves. That always seemed to me such a natural idea that I’ve never understood why it took so much aggressiveness and so much time to get it started!
With the escalation of the Vietnam War, Paley's activism reached a new level. Paley joined the War Resisters League and came to national prominence as an activist when she accompanied a 1969 peace mission to Hanoi to negotiate the release of prisoners of war. She also served as a delegate to the 1974 World Peace Conference in Moscow and in 1978, was arrested as one of "The White House Eleven" for unfurling an anti-nuclear banner (that read "No Nuclear Weapons—No Nuclear Power—USA and USSR") on the White House lawn.
Instead, with the aid of friend and neighbor Donald Barthelme, a famous author in his own right, Paley assembled a second collection of fiction in 1974, Enormous Changes at the Last Minute. This collection of seventeen stories features several recurring characters from Little Disturbances of Man (most notably the narrator "Faith," but also including Johnny Raferty and his mother), while continuing Paley's exploration of racial, gender, and class issues.
The long story, "Faith in a Tree," positioned roughly at the center of the collection, brings a number of characters and themes from the stories together on a Saturday afternoon at the park. Faith, the narrator, climbs a tree to get a broader perspective on both her neighbors and the "man-wide world," and after encountering several war protesters, declares a new social and political commitment. The collection's shifting narrative voice, metafictive qualities, and fragmented, incomplete plots have led most critics to classify it as a postmodernist work.
Paley continues the stories of Faith and her neighbors in the collection Later the Same Day (1985). All three volumes were gathered in her 1994 Collected Stories, which was a finalist for both the Pulitzer Prize and the National Book Award. Paley's other honors include a 1961 Guggenheim Fellowship for Fiction, the Edith Wharton Award (1983), the Rea Award for the Short Story (1993) the Vermont Governor's Award for Excellence in the Arts (1993), and the Jewish Cultural Achievement Award for Literary Arts (1994).
In 1980, she was elected to the National Academy of Arts and Letters and in 1989, Governor Mario Cuomo made her the first official New York State Writer. She was the Vermont State Poet Laureate from March 5, 2003 until July 25, 2007.