Woolsey was born on January 29, 1835 into the wealthy, influential New England Dwight family, in Cleveland, Ohio. Her father was John Mumford Woolsey (1796-1870) and her mother Jane Andrews, and author and poet Gamel Woolsey was her niece. She spent much of her childhood in New Haven Connecticut after her family moved there in 1852.Woolsey worked as a nurse during the American Civil War (1861-1865), after which she started to write. She never married, and resided at her family home in Newport, Rhode Island, until her death. She edited The Autobiography and Correspondence of Mrs. Delaney (1879) and The Diary and Letters of Frances Burney (1880).
She is best known for her classic children's novel What Katy Did (1872). The fictional Carr family was modeled after her own, with Katy Carr inspired by Woolsey herself. The brothers and sisters were modeled on her four younger siblings: Jane Andrews Woolsey, born October 25, 1836, who married Reverend Henry Albert Yardley; Elizabeth Dwight Woolsey, born April 24, 1838, who married Daniel Coit Gilman and died in 1910;Theodora Walton Woolsey, born September 7, 1840; and William Walton Woolsey, born July 18, 1842, who married Catherine Buckingham Convers, daughter of Charles Cleveland Convers.