Tyler was born Liv Rundgren at Mount Sinai Hospital in New York. She is the first-born daughter of Bebe Buell, a model, singer, and former Playboy Playmate , and Steven Tyler, the lead singer of Aerosmith. Her mother named her after Norwegian actress Liv Ullmann, after seeing Ullmann on the cover of the March 5, 1977 issue of TV Guide.
Tyler had her breakthrough role in Stealing Beauty (1996), in which she played Lucy Harmon, an innocent, romantic teenager who travels to Italy intent on losing her virginity. The film received generally mixed reviews, but Tyler's performance was favored by the critics; Variety wrote: "Tyler is the perfect accomplice. At times sweetly awkward, at others composed and serene, the actress appears to respond effortlessly and intuitively to the camera, creating a rich sense of what Lucy is about that often is not explicit in the dialogue."
In 2001, she starred in the feature film The Lord of the Rings: The Fellowship of the Ring, directed by Peter Jackson. She played the Elf maiden Arwen Undómiel. The film is based on the first volume of J. R. R. Tolkien's The Lord of the Rings. The filmmakers approached Tyler after seeing her performance in Plunkett & Macleane.
Tyler is an active supporter of the charitable United Nations Children's Fund (UNICEF). She was appointed as a Goodwill Ambassador for the United States in 2003. In November 2004, she hosted the lighting of the UNICEF Snowflake in New York City. Tyler also served as spokesperson for the 2004 Givenchy Mother's Day promotion, in support of UNICEF's Maternal & Neonatal Tetanus (MNT) campaign.
Since 2004, she has donated to the Women's Cancer Research Fund to support innovative research, education, and outreach directed at the development of more effective approaches to the early diagnosis, treatment and prevention of all women's cancers. In October 2007, Tyler, along with her mother, Bebe Buell and her grandmother, Dorothea Johnson, helped launch the Emergen-C Pink energy drink, in which the event was in honor of Breast Cancer Awareness month.