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Born in Kolhapur, Maharashtra, Athaiya started her career as a freelance fashion illustrator for various women's magazines in Bombay, including the Eve's Weekly. Later, she switched her career path and took to designing dresses.
Her costume designing career began with Guru Dutt's film C.I.D in 1956. During her career spanning 50 years, she won numerous awards, and became the first Indian to win an Academy Award. She also won two National Film Awards in 1991 and 2002.
She last designed costumes were Aamir Khan’s Lagaan and Shah Rukh Khan starrer Swades.
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