Dalton, whose heritage was Cherokee, was born in Enid, Oklahoma. Her bluesy, world-weary voice is often compared to that of iconic jazz singer Billie Holiday. She sang blues, folk, country, pop, Motown -- making over each song in her own style. She played the twelve string Gibson guitar and a long neck banjo.
In his 2004 autobiography, Bob Dylan wrote this in his description of discovering and joining the music scene at Greenwich Village's Cafe Wha? after arriving in New York City in 1961: "My favorite singer in the place was Karen Dalton. Karen had a voice like Billie Holiday and played guitar like Jimmy Reed... I sang with her a couple of times."
Dalton's second album, In My Own Time (1971), was recorded at Bearsville Studios and originally released by Woodstock Festival promoter Michael Lang's label, Just Sunshine Records. The album was produced and arranged by Harvey Brooks, who played bass on it. (Harvey Brooks played bass also on the Miles Davis album Bitches Brew, on the Bob Dylan album Highway 61 Revisited and on the Richie Havens album Mixed Bag.) Piano player Richard Bell guested on In My Own Time. Its liner notes were written by Fred Neil and its cover photos were taken by Elliot Landy. Less well-known is Dalton's first album, It's So Hard to Tell Who's Going to Love You the Best (Capitol, 1969), which was re-released by Koch Records on CD in 1996.
Both Dalton's albums were re-released in November 2006: It's So Hard To Tell Who's Going To Love You The Best, on the French Megaphone-Music label, included a bonus DVD featuring rare performance footage of Dalton. In My Own Time was re-released on CD and LP on November 7, 2006 by Light In The Attic Records.
The version of the song Something on Your Mind (composed by Dino Valenti) that is sung by Dalton on her album In My Own Time is the soundtrack during the ending credits of the 2007 film Margot at the Wedding, which was written and directed by Noah Baumbach and starred Nicole Kidman and Jennifer Jason Leigh.
Known as "the folk singer's answer to Billie Holiday" and "Sweet Mother K.D.", Dalton is said to be the subject of the song Katie's Been Gone (composed by Richard Manuel and Robbie Robertson) on the album The Basement Tapes by The Band and Bob Dylan. She struggled with drugs and alcohol for many years. It has been widely reported that she died in 1993 on the streets of New York City after an eight-year battle with AIDS.
However, an article in Uncut magazine confirmed that Dalton was actually being cared for by the guitarist Peter Walker in upstate New York during her last months.