Born and raised in Montreal, Quebec, Canada, by an American father David Rhea and a Canadian mother Margery Rhea. She has two sisters. Cynthia Rhea and Celia Rhea. Caroline is fluent in French and English. She moved to New York in 1989 to study stand-up comedy at the New School for Social Research. She says her true training came from her first gigs at the comedy club Catch A Rising Star. Performing around New York City, she quickly gained a reputation, and a name in the city's competitive comedy scene. These performances were augmented with appearances on MTV's Half-Hour Comedy Hour, Comic Strip Live and Caroline's Comedy Hour. She decided to move to Los Angeles for a career in Hollywood, debuting in NBC television series Pride and Joy co-starring with Jeremy Piven. She gained most fame for her role as "Aunt Hilda" on the ABC and The WB's Sabrina, The Teenage Witch, as well as being a regular on the most recent incarnation of Hollywood Squares, with Tom Bergeron and Whoopi Goldberg (in the center square). Other credits include: supporting role in Jim Carrey's Andy Kaufman bio-pic Man on the Moon supporting role in wrestling movie Ready to Rumble with Oliver Platt, David Arquette and Scott Caan host of VH1 series, Fool for Love host of Lifetime series, The Great Lifetime Makeover, executive produced by Geena Davis guest-starring as Drew Carey's girlfriend on The Drew Carey Show guest-starring on HBO's Larry David written show, Curb Your Enthusiasm starring in television movie, Mom's Got A Date With A Vampire supporting role in Christmas with the Kranks with Tim Allen, Jamie Lee Curtis and Dan Aykroyd regular guest on Late Night with Conan O'Brien appearances on The Late Show with David Letterman, The Tonight Show with Jay Leno, Comedy Central's Pulp Comic She has appeared in Comic Relief 8, as well as the Ms. Foundation's "Women of Comedy from Caroline's Comedy Club" (no relation to Rhea).

The Caroline Rhea Show was created in 2002 upon Rosie O'Donnell's departure from daytime television. Rhea was hand-picked by O'Donnell and had previously served as a guest host for O'Donnell throughout the final two seasons of The Rosie O'Donnell Show. The show was cancelled in June 2003, upon the completion of its first season.