Yellen was born in Brooklyn, New York, and graduated from Fort Hamilton High School in the Bay Ridge section of Brooklyn. She graduated magna cum laude from Brown University with a degree in economics in 1967, and received her Ph.D. in economics from Yale University in 1971.

Since 1980, she has been conducting research at the Haas School and teaching macroeconomics to full-time and part-time MBA students. She was the Eugene E. and Catherine M. Trefethen Professor of Business and Professor of Economics. Twice she has been awarded the Haas School's outstanding teaching award. In addition, she served as chair of President Bill Clinton's Council of Economic Advisers from 1997 to 1999, and was appointed as a member of the Federal Reserve System's Board of Governors from 1994 to 1997. She has taught at Harvard University and at the London School of Economics. Yellen serves as president of the Western Economic Association International and is a former vice president of the American Economic Association. She is a fellow of the Yale Corporation.

Yellen is considered by many on Wall Street to be an "inflation dove" (as concerned with unemployment as inflation) and as such to be less likely to advocate Federal Reserve interest rate hikes, as compared, for example, to William Poole (former St. Louis Fed president) an "inflation hawk" (see definitions under Inflation).

In July 2009, Yellen was mentioned as a potential successor to Ben Bernanke as chairman of the Federal Reserve System, before he was renominated by Barack Obama.

On April 28, 2010, President Obama nominated her to be the successor to Donald Kohn as vice-chairman of the Federal Reserve System. In July, "[t]he Senate Banking Committee voted 17 to 6 to confirm her, though the top Republican on the panel, Senator Richard C. Shelby of Alabama, voted no, saying he believed Ms. Yellen had an 'inflationary bias.'" At the same time, on the heels of concerned testimony by Fed chair Bernanke, FOMC voting member James B. Bullard of the St; Louis Fed made a statement that the U.S. economy was "at risk of becoming 'enmeshed in a Japanese-style deflationary outcome within the next several years.'" Bullard's statement was interpreted as a possible shift within the FOMC balance between inflation hawks and doves. Yellen's pending confirmation, along with those of Peter A. Diamond and Sarah Bloom Raskin to fill vacancies, was seen as possibly furthering such a shift in the FOMC. All three nominations were seen as "on track to be confirmed by the Senate."

According to Fed Salary figures released for 2010 she earns $410,000 per year, more than twice the Chairman Ben Bernanke ($199,700) whose pay is limited by law.

Yellen is married to George Akerlof, a Nobel prize-winning economist and professor emeritus at the University of California, Berkeley.

Yellen received the Wilbur Cross Medal from Yale in 1997, an honorary Doctor of Laws degree from Brown in 1998, and an honorary Doctor of Humane Letters from Bard College in 2000.