She was born Ella Geisman in the Bronx, New York City to Clara and Robert Geisman. Her father, whose original surname was Van Geisman (a Dutch name), was from West Virginia and worked as a janitor, separating from Allyson's mother during her childhood and leaving the family. Allyson was brought up in near-poverty. After a childhood accident, she took up both swimming and dancing as therapy, and made her Broadway chorus-line debut in 1938 in the musical Sing Out the News. After her appearance in Best Foot Forward in 1941, she was selected for the 1943 film version, and followed it up with several other musicals, including Two Sisters from Boston (1946) and Good News (1947). She also played straight roles such as Constance in The Three Musketeers (1948), the tomboy Jo in Little Women (1949), and Glenn Miller's wife in The Glenn Miller Story (1953).

On August 19, 1945, Allyson caused Hollywood studio chiefs some consternation by marrying Dick Powell, who was 13 years her senior and had been previously married to Mildred Maund and Joan Blondell. They had two children, Pamela Allyson Powell (adopted) and Richard Powell, Jr., and remained married until his death on January 2, 1963, which led to Allyson's effective retirement from the screen. Following Powell's death, she went though a bitter court battle with her mother over custody of son Ricky and Pamela. Reports at the time revealed that writer/director Dirk Summers, with whom Allyson was romantically involved from 1963-1975, was named legal guardian for Ricky and Pamela as a result of a court petition.

Members of the nascent jet-set, Allyson and Summers were frequently seen in Cap d'Antibes, Madrid, Rome and London. However, the relationship did not last and she married briefly to Glenn Maxwell. She has been married to David Ashrow, a dentist turned actor, since 1976.

Dick Powell had been a major television player with his own production company, Four Star, owning several network shows. When he died, Allyson was left very well off and didn't need to work. She occasionally made appearances on talk and variety shows, but gained new-found celebrity in the 90s as spokeswoman for Depends adult undergarments. Her name made the headlines again when actor-turned-agent Marty Ingels publicly charged Allyson with not paying his large commission on the Depends deal. Allyson counter-charged that Ingels was harassing her with dozens of phone calls daily and nightly.

For her contribution to the motion picture industry, June Allyson has a star on the Hollywood Walk of Fame at 1537 Vine Street.