Hughes grew up in West Kirby, in the Wirral. She has stated that during childhood she was inspired by artists like Arthur Rackham and W. Heath Robinson, and later the cinema and the Walker Art Gallery. She was educated at West Kirby Grammar School, and studied drawing and costume design at the Liverpool School of Art, then the Ruskin School of Drawing and Fine Art in Oxford. Whilst at Oxford, she was encouraged to work in the picture book format and to make lithographic illustrations. Soon she was commissioned by Collins. After art school Hughes moved to Notting Hill, London and married John Vulliamy, an architect and etcher, and they had three children together, including the journalist Ed Vulliamy and a daughter who is also a children's book illustrator, Clara Vulliamy.

Hughes began her work during the 1950s and 1960s by illustrating other authors' books, such as My Naughty Little Sister by Dorothy Edwards and The Bell Family by Noel Streatfeild. In 1960 she wrote and illustrated her first book, Lucy & Tom's Day, which was made into a series of stories. She went on to write over fifty more stories, including a series about a young boy named Alfie, and his sister Annie-Rose.

Her 1977 story, Dogger, was the first to be published widely abroad. This story also won her the Kate Greenaway Medal the same year. In 1984 Hughes won the Eleanor Farjeon award for distinguished services to children's literature. In 1999, she was awarded an OBE, and in 2000 she was made a Fellow of the Royal Society of Literature. In 2003 she won the Kate Greenaway Medal again for Ella's Big Chance and was also granted an Honorary Fellowship by Liverpool John Moores University and an Honorary Degree by the University of Liverpool in 2004.