Dillon is the third of five children of Professor Thomas Dillon and his wife Geraldine (née Plunkett), who is the sister of Joseph Mary Plunkett. She is raised at Dangan House outside of Galway City before moving to the small fishing village of Barna. She attends the local primary school where she becomes proficient in the Irish language and gains an intimate knowledge of tradition in the Connemara. Her family is involved in Irish revolutionary politics. Her uncle, Joseph Mary Plunkett, is a signatory of the 1916 Proclamation of the Irish Republic and is executed after the Easter Rising.
Educated by the Ursuline nuns in Sligo, she works briefly in the hotel and catering trade. In 1940 she marries Cormac Ó Cuilleanáin, an academic from University College Cork and 17 years her senior. They have at least three children, including the Irish poet and Trinity College Dublin professor Eiléan Ní Chuilleanáin and her brother, Cormac Ó Cuilleanáin, also a Trinity professor, who writes novels as Cormac Millar.
Dillon’s first books are written in Irish including An Choill Bheo, published in 1948, Oscar agus an Cóiste sé nEasóg in 1952 and Ceol na coille in 1955. After the success of The Lost Island, published in 1952, she writes almost exclusively in English. Most of her books are aimed at teen readers with themes of self-discovery and problem solving evident.
Dillon’s adult fiction career begins in 1953 with the publication of the detective novel Death at Crane’s Court. This is followed by Sent to His Account in 1954 and Death in the Quadrangle in 1956. These novels are known for their depiction of contemporary Ireland. Over the following decade Dillon publishes many novels including The Bitter Glass (1959), Across the Bitter Sea (1973) and The Wild Geese (1981).
In 1964 she moves to Rome due to her husband’s poor health. While there she acts as adviser to International Commission on English in the Liturgy. She returns to Cork with her husband in 1969 where he dies the following year. She continues to visit Italy over the next several years, setting some of her stories there including Living in Imperial Rome (1974) and The Five Hundred (1972), though these are not as popular as her Irish books. In 1974 she marries the American-based critic and professor Vivian Mercier, dividing her time between California, Italy and Dublin.
In her later years Dillon plays a prominent role in Irish culture. She is a Fellow of the Royal Society for Literature and a member of Aosdána, serves on the Irish Arts Council 1974–1979, chairs the Irish Writers’ Union and the Irish Writers’ Centre, and founds the Irish Children’s Book Trust. In 1987 she and her husband move permanently to Dublin where she supports up and coming Irish authors. Her last story is Children of Bach published in 1993.