Holliday began her show business career in 1938, under her original name, as part of a nightclub act called The Revuers. The other members of the group were Betty Comden, Adolph Green, Alvin Hammer, John Frank, and Esther Cohen. The Revuers played engagements in New York night clubs including the Village Vanguard, Spivy’s Roof, the Blue Angel, and the Rainbow Room, and the Trocadero in Hollywood, California. Leonard Bernstein, a friend of the group who shared an apartment with Green at the time, sometimes provided piano accompaniment for the group’s performances. The Revuers filmed a scene for the 1944 Carmen Miranda film Greenwich Village, but the scene was cut, although Holliday can be seen as an unbilled extra in another scene. The group disbanded in early 1944.

Her first film role was a small but noticeable role as an airman’s wife in the Twentieth Century Fox film version of the U.S. Army Air Forces’ play Winged Victory (1944). She did not appear in the stage version, which toured the U.S. both before and after production of the film. Holliday made her Broadway debut on March 20, 1945 at the Belasco Theatre in Kiss Them for Me and was one of the recipients that year of the Clarence Derwent Award.

In 1946, she returned to Broadway as the scatterbrained Billie Dawn in Born Yesterday. Author Garson Kanin wrote the play for Jean Arthur, who played the role of Billie but left out-of-town for personal reasons. Kanin then selected Holliday, two decades Arthur’s junior, as her replacement. In his book Tracy and Hepburn (1971), Kanin mentions that when Columbia bought the rights to the film Born Yesterday, studio boss Harry Cohn would not consider casting the Hollywood-unknown. Kanin, along with George Cukor, Spencer Tracy, and Katharine Hepburn conspired to promote Holliday by offering her a key part in the film Adam’s Rib (1949).

In 1948 Holliday married clarinetist David Oppenheim, who was later a classical music and television producer and academic. The couple had one child, Jonathan, before they divorced in 1958. She then had a long-term relationship with jazz musician Gerry Mulligan, but the couple never married.

In 1950, Holliday’s name appeared on a list of 151 “pro-Communist” artists in the conservative publication Red Channels: The Report of Communist Influence in Radio and TV. The next year, she was subpoenaed by Senator Pat McCarran’s Senate Internal Security Subcommittee, which was investigating subversion and Communist activity in the entertainment industry. She appeared before the committee on March 26, 1952, with Simon H. Rifkind as her legal counsel.

She starred in the film version of The Solid Gold Cadillac, which was released in August 1956. In November 1956, Holliday returned to Broadway starring in the musical Bells Are Ringing with book and lyrics by her Revuers friends, Betty Comden and Adolph Green, and directed by Jerome Robbins. In 1957, she won the Tony Award for Best Leading Actress in a Musical. Of her performance in the stage musical Brooks Atkinson wrote in The New York Times;

In October 1960, Holliday started out-of-town tryouts on the play Laurette based on the life of Laurette Taylor. The show was directed by José Quintero with background music by Elmer Bernstein and produced by Alan Pakula. When Holliday became ill and had to leave the show, it closed in Philadelphia without opening on Broadway.

She had surgery for a throat tumor shortly after leaving the production in October 1960. Her last role was in the stage musical Hot Spot, co-starring newcomers such as Joseph Campanella and Mary Louise Wilson, which closed after 43 performances on May 25, 1963.

After beating breast cancer a few years earlier, Holliday died on June 7, 1965, at Manhattan’s Mount Sinai Hospital from a recurrence of the disease, two weeks before her 44th birthday. She was interred in the Westchester Hills Cemetery in Hastings-on-Hudson, New York. Five years prior to her death, she was awarded a star on the Hollywood Walk of Fame at 6901 Hollywood Boulevard in Los Angeles.