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Keene was born Mary Jess Moss in Winchester, England. She was the fourth and final child of Tomas and Jane Moss (née King). Her aunt was British Actress Elizabeth Yates. At the age of 18, she married British Army officer Henry Wellington Taylor (some sources identify Taylor as "John"). Taylor was reportedly the nephew and Godson of Arthur Wellesley, 1st Duke of Wellington. The couple had two daughters, Emma (born 1846) and Clara Marie Stella (born 1849). After being discharged from the army, Taylor opened his own tavern. Around 1850, Taylor was arrested, though the nature of his crime is now unknown. After being convicted, he was reportedly sent from England to Australia on a prison ship. Keene would later travel to Australia in order to locate Taylor to divorce him but could never determine his whereabouts. (Some accounts say that Keene did find Taylor but he refused to consent to a divorce). They remained married until Taylor's death in 1860.

Keene made her professional debut as Pauline in The Lady of Lyons in London in October 1851. This was followed by performances at London's Royal Olympic Theatre and Royal Lyceum Theatre, including several months working under Madame Vestris. In 1852, less than a year performing in Britain, Keene accepted an offer from James william Wallack to go to New York City, and serve as the leading lady in the stock company at his successful theater.

Her first performance at his theatre was in The Will as Albino Mandeville. She enjoyed great popularity during her time at Wallack's Theatre (20 September 1852, through 22 November 1853). In order to have greater control over her career, she then entered into theater management with the help of John Lutz, whom she married in 1860 and was with her for the rest of her career. She left Wallack's company unexpectedly one night and moved to Baltimore. Keene leased the Charles Street Theater, in Baltimore, from 24 December 1853, to 2 March 1854, where she acted as manager, Director and performer. She started doing touring performances in California (6 April through 29 July 1854), in Australia (23 October 1854 through January 1855), and again in California (9 April through 4 October 1855). During the first stint in California, she was hired by Catherine Norton Sinclair to play opposite Edwin Booth. After spending a month as the manager and lessee of the Union Theatre in San Francisco (from 29 June through 29 July 1854), Keene and Booth toured to Australia. Booth's drunken behavior in Australia put an end to their relationship and their tour. On her return to California, she also managed the American Theatre. She managed and performed there for a few years until a new law was passed in California banning any form of entertainment on the Sabbath. This greatly decreased the attendance of theatre performances and gave Keene reason to leave and start a new project in New York.

At this point, she lined up Investors, along with an Architect who specialized in theaters, and a new theater was constructed to her specifications. Named the Laura Keene's Theatre, it opened on 18 November 1856. In November 1857 she put on The Sea of Ice to financial success.

Stage entertainment turned over quickly in that era, with few productions exceeding a dozen performances, but Keene bucked those odds. An 1857 show called The Elves ran for a record 50 performances. Moreover, 1860 was to prove itself an important year for her theater and American drama as well. On 29 March, she premiered Dion Boucicault's The Colleen Bawn, which ran for six weeks until the end of the season on 12 May; the highlight of this play was the creation of an ocean island on stage in a scene which culminated with the hero diving into the ocean to save the colleen bawn Eily O'Connor. (Betting on the play's success, Boucicault took The Colleen Bawn to London, where it opened on 10 September 1860 and ran for 230 performances, becoming the first long run in the history of English theater.) In November 1860, Keene premiered the musical The Seven Sisters, which featured extravagant sets and ran for 253 performances, an astonishing total for the time.

In 1858, Our American Cousin debuted in Laura Keene's Theater. On the night of 14 April 1865, Keene's company, which primarily included John Dyott and Harry Hawk, were performing Our American Cousin at Ford's Theatre in Washington, D.C.. In attendance that night were President Abraham Lincoln and his wife First Lady Mary Todd Lincoln. Actor John Wilkes Booth fatally shot President Lincoln while Lincoln watched the play from the presidential box; Booth then fled the theatre. Amid the confusion, Keene made her way to the presidential box where Lincoln lay dying and cradled the mortally wounded President's head in her lap. President Lincoln's fatal head wound bled on her dress, staining her cuff. The cuff was later donated to the National Museum of American History.

Keene's second husband, John Lutz, died on 18 April 1869. On 4 November 1873, Keene died of tuberculosis at the age of 47 at Montclair, New Jersey. She is buried in Green-Wood Cemetery in Brooklyn.