Lyle was first signed as an amateur free agent by the Baltimore Orioles on June 17, 1964; however, he never played a game for the Orioles. On November 30 of the same year, he was drafted by the Boston Red Sox from the Orioles. He first joined the Red Sox as a player on July 4, 1967 in their "Impossible Dream" season. He was at first assigned uniform number 15 by the Red Sox, but during the middle of the 1967 season was given number 28, which he retained through nearly all his major league career. By the 1969 season he would emerge as the Red Sox' top reliever. On March 22, 1972 he was traded to the New York Yankees in exchange for first baseman Danny Cater and a player to be named later (Mario Guerrero).

Lyle became the Yankees' bullpen ace, and established himself as one of the best relief pitchers of the 1970s, helping the Yankees to three straight pennants from 1976-78 and winning the World Series the last two years. In 1972 he saved 35 games, an American League record, and a major league record for left-handers; Ron Perranoski had set both marks in 1970, but John Hiller would surpass Lyle's total with 38 in 1973. In 1972 Lyle also became the first left-hander to collect 100 saves in the AL. He again led the league in saves in 1976, and in 1977 became the first AL reliever ever to win the Cy Young Award. He was named an AL All-Star in 1973, '76 and '77. In 1976 he broke Hoyt Wilhelm's AL record of 154 career saves, and the following year he broke Perranoski's major league record for left-handers of 179 career saves. Through 1977 Lyle had compiled 201 career saves, and was within range of Wilhelm's career major league record of 227.

But despite the fact Lyle had won the 1977 Cy Young Award, the Yankees signed Goose Gossage as a free agent just weeks later, and Gossage followed with an outstanding 1978 season which made Lyle expendable. On November 10, 1978 he was part of a major trade which sent him, along with four other players and cash, to the Texas Rangers in exchange for Juan Beniquez and four other players, including a young Dave Righetti. During the '78 season, Yankees teammate Graig Nettles famously quipped that Lyle went from Cy Young to sayonara.

Now in his late thirties, Lyle was unable to duplicate the great success he had previously enjoyed (perhaps due to the strain of pitching over 100 innings 6 times between 1969-78), and saved only 21 games for the Rangers in 1979-80. Rollie Fingers moved ahead of Lyle in career saves in early 1980, breaking Wilhelm's major league record just weeks before Lyle reached the mark, and Fingers eventually pushed the record beyond reach.

On September 13, 1980, Lyle was traded to the Philadelphia Phillies for a player to be named later (Kevin Saucier). Although the Phillies won their first World Series title in 1980, Lyle did not appear in the postseason. He was first assigned number 39 with the Phillies, but for the 1981 season resumed the uniform number 28 which had been his trademark since 1967.

On August 21, 1982 he was purchased by the Chicago White Sox from the Phillies. His last game was played on September 27 of that season for the White Sox, who released him on October 12. Lyle finished his 16-year career with 238 saves, a 2.88 ERA, and a record of 99-76 in 899 games pitched - all in relief. In 1985, Fingers broke his AL record for career saves; and in 1991 Righetti surpassed his major league record for career saves by a left-hander, though Lyle still holds the AL mark of 232.

A noted clubhouse prankster in his playing days, Lyle was known for sneaking into the locker room during games to sit on the birthday cakes prepared for teammates, leaving the imprint of his posterior on the frosting.

In 1998, he became the manager of the Somerset Patriots, a minor league team based in Bridgewater, New Jersey, where he resumed wearing number 28. He managed the team to Atlantic League pennants in 2001, 2003 and 2005. He remains the only manager in club history.