She was born into poverty and a broken home as Marie Grace de Repentigny in the mill town of Manchester, New Hampshire, writing from an early age. At Manchester Central High School she acted in school plays, and after graduation she married George Metalious in 1943, became a housewife and mother, lived in near squalor — and continued to write. With one child, the couple moved to Durham, New Hampshire, where George attended the University of New Hampshire. In Durham, Grace Metalious began writing seriously, neglecting her house and her three children. When George graduated, he took a position as principal at a school in Gilmanton, New Hampshire.

At the age of 30, she began work in the fall of 1954 on a manuscript with the working title The Tree and the Blossom. By the spring of 1955, she had finished a first draft. However, she and her husband regarded The Tree and the Blossom as an unwieldy title and decided to give the town a name which could be the book's title. They first considered Potter Place (the name of a real community near Andover, New Hampshire). Realizing their town should have a fictional name, they looked through an atlas and found Payton (the name of a real town in Texas). They combined this with Place and changed the "a" to an "e". Thus, Peyton Place was born, prompting her comment, "Wonderful—that's it, George. Peyton Place. Peyton Place, New Hampshire. Peyton Place, New England. Peyton Place, USA. Truly a composite of all small towns where ugliness rears its head, and where the people try to hide all the skeletons in their closets."

She found an agent, M. Jacques Chambrun, who submitted the manuscript to three major publishers before it was accepted at the end of summer 1955 by the small firm of Julian Messner, Inc., owned and operated by Kathryn Messner. At the time of Rona Jaffe's departure from Fawcett Publications in 1955, the new associate editor who stepped in was Leona Nevler, formerly with Little, Brown but best known in 1950s publishing circles as the person who saw the potential of Grace Metalious' bestselling Peyton Place after picking it from the slush pile at publisher Julian Messner. During her 26 years at Fawcett, Nevler became the editorial director in 1972.

In the summer of 1956, the Metalious family moved into a new hilltop house, and a publicity campaign was launched for the book, published September 24, 1956. Reviled by the clergy and dismissed by most critics, it nevertheless remained on The New York Times bestseller list for more than a year and became an international phenomenon.

The dark secrets of a small New England town made juicy reading for millions worldwide. The town of Peyton Place appears to have been a combination of three New Hampshire towns: Gilmanton, the village where she lived (and which resented the notoriety); Laconia, the only nearby town of comparable size to Peyton Place and site of Metalious' favorite bar; and Alton, the town where a few years previously a daughter had murdered her incestuous abusive father. Hollywood lost no time in cashing in on the book's success — a year after its publication, Peyton Place was a major box office hit. A prime time television series that aired on ABC-TV from 1964 through 1969 was a ratings success as well.

Metalious — the "Pandora in bluejeans" — was said by some to be a dreadful writer and a purveyor of filth, but her most famous book changed the publishing industry forever. With regard to her success, she said, "If I'm a lousy writer, then an awful lot of people have lousy taste," and as to the frankness of her work, she stated, "Even Tom Sawyer had a girlfriend, and to talk about adults without talking about their sex drives is like talking about a window without glass."

Her other novels, all of which sold well but never achieved the same success as her first, were Return to Peyton Place (1959), The Tight White Collar (1961) and No Adam in Eden (1963).

Metalious died of alcoholism on February 25, 1964. "If I had to do it over again," she once remarked, "it would be easier to be poor. Before I was successful, I was as happy as anyone gets." She is buried in Smith Meeting House Cemetery in Gilmanton, New Hampshire.

In 2006, Sandra Bullock was slated to star in and co-produce a biopic of Metalious' life.

In 2007, the city of Manchester, the Manchester Historic Association, and the University of New Hampshire at Manchester honored Metalious with an in-depth examination of her life and most famous book. The celebration, which included lectures, readings of her work, and showings of the movie, marked the area's first public acknowledgment of its native daughter.