Coddington was born to hotelier parents on the island of Anglesey, Wales. Her interest in fashion began in her teens, when she would anxiously await the arrival of a current issue of Vogue magazine, which was at least three months outdated due to the fact that she needed to order it on "Rush-Copy". She lived miles away from any designer shops, so Vogue was her only connection to the fashion world. She says that she loves "the whole sort of chic thing [about Vogue] that was so entirely out of context compared to the lifestyle that [she] led". As a teen, she was pale-skinned and convent-educated and never went anywhere on her holidays, so she just looked at Vogue. Around the age of 17, there was a Vogue model competition, and someone submitted her pictures. She ended up winning the Young Model section. She then began her modeling career for Vogue.

At the age of 26, Grace was in car accident which left her disfigured (she lost her eyelid). She later had plastic surgery to have it reconstructed. Two years after the accident, at the age of 28, she was interviewed by British Vogue's Editor, Beatrix Miller and she was employed as a Junior Editor. After nineteen years as Photo Editor with British Vogue, she moved to New York to work for Calvin Klein. In July 1988, she joined Anna Wintour at American Vogue, where she remains the magazine's creative director.

Coddington came into the public eye in 2009 with the release of The September Issue, a fly-on-the-wall documentary about the making of the September 2007 issue of Vogue. She plays a prominent role in the film as she is heavily involved in the styling and production of the issue. Her often tense relationship with editor Anna Wintour is also highlighted.

Coddington was married in 1968 to Michael Chow, a restaurateur. They divorced a year later. She later married the photographer Willie Christie. They were divorced. She raised her nephew after the death of her sister Rosemary. In New York, she has had a long-term relationship with the hairstylist Didier Malige.. In 2010, she announced plans to write a memoir with her collaborator Jay Fielden. The two had previously worked together on the 2002 photo book, Grace: Thirty Years of Fashion at Vogue.