Freeman was born in Chicago, Illinois. She began her career as a child, dancing in her parents' vaudeville act. After a stint studying music at University of California, Los Angeles, she went into acting full-time, working on the stage, and finally entering films in 1948. She was a founding member, in 1946, of the Circle Players at The Circle Theatre, now known as El Centro Theatre.
Freeman made her film debut in Wild Harvest (1947). Freeman's most notable early role was an uncredited part in the 1952 musical Singin' in the Rain, as Jean Hagen's diction coach, Phoebe Dinsmore.
Beginning with the 1954 film 3 Ring Circus, Freeman became a favorite foil of Jerry Lewis, playing opposite him in 11 films. These included most of Lewis's better known comedies, including The Disorderly Orderly as Nurse Higgins, The Errand Boy as the studio boss's wife, and especially The Nutty Professor as Millie Lemon. Over 30 years later, she made a small cameo appearance in Nutty Professor II: The Klumps.
Other film roles included appearances in The Missouri Traveler (1958), the horror film The Fly (1958), the Western spoofs Support Your Local Sheriff! (1969) and Support Your Local Gunfighter (1971), and appearances in a spate of comedies in the 1980s and 1990s. Freeman played Sister Mary Stigmata (referred to as The Penguin) in John Landis' The Blues Brothers and Blues Brothers 2000, had cameos in Joe Dante's Innerspace and Gremlins 2: The New Batch (as tipsy cooking host Microwave Marge in 2), and a Ma Barker type gangster mother in Naked Gun 33⅓: The Final Insult.
In addition to teaching acting classes in Los Angeles, Freeman was a familiar presence on television. In 1958 and 1959, she appeared three times on Buckskin, a children's program set in a hotel in a fictitious Montana town. She appeared from the 1950s until her death in regular or recurring roles on many sitcoms, including six episodes of The Bob Cummings Show (as Bertha Krause), Topper (as Katie the maid), and The Donna Reed Show (as Mrs. Celia Wilgus, the Stone's busybody next door neighbor, with Howard McNear as her husband, Wilbur).
Freeman was cast on Hogan's Heroes (as Frau Gertrude Linkmeyer, General Burkhalter's sister, who longed to wed Colonel Klink), Funny Face (as Mrs. Kate Harwell, Sandy Duncan's landlady and friend), I Dream of Jeannie (as a grouchy supervisor in a fantasy preview of Major Nelson's future), the short-lived prehistoric sitcom It's About Time (as Mrs. Boss), and as the voice of Peg Bundy's mom, an unseen character on Married... with Children.
She remained active in her last two years, with a regular voice role on As Told by Ginger, Rugrats, a voice bit in the animated feature film Shrek, a guest appearance on the sitcom Becker and scoring a Tony Award nomination and a Theatre World Award for her role as Jeannette Burmeister in the Broadway musical version of The Full Monty.
In her final episode of As Told by Ginger, Season 2's "No Hope for Courtney", Freeman's character, Mrs. Gordon, retires from her teaching job although Carl and Hoodsey try convincing her to return to work. The script was originally written to have Mrs. Gordon return to Lucky Elementary School, but Freeman died before the episode was finished. The script was then re-written and Mrs. Gordon died as well. The episode was dedicated in Freeman's memory. The dedication came at the end of the episode after announcement that Elaine Gordon had died and Carl was crying. The screen faded to black and "In Memory of Kathleen Freeman" was shown.
Weakened by illness, Freeman was forced to leave the Full Monty cast. Five days later, she died of lung cancer at age 82 at Lenox Hill Hospital. She was cremated and her ashes inurned in a niche at Hollywood Forever Cemetery. She never married. British reports of her death included her surviving long-time companion, Helen Ramsey, but U.S. obituaries did not.