Dunn was born in British Hong Kong to Yen Chuen Yih Dunn and Bessie Chen on 29 February 1940.
Dunn is married to Michael David Thomas (Chinese: 唐明治), who was the Attorney General of Hong Kong from 1983 to 1988.
Her family name. Dunn, was anglicised from Deng, the same as Deng Xiaoping.
She is stepmother to her husband's son, David Thomas, born 1960, who advises and represents Australian businesses.
Dunn was educated at St Paul's Convent School in Hong Kong, and at the College of the Holy Names and the University of California, Berkeley.
Dunn began her public service career in 1976, when she was appointed to a seat on the Legislative Council by Governor Sir Murray MacLehose. Like many in the then elite, she initially accepted Hong Kong's constitutional order, believing it unwise to risk upsetting Beijing by pushing for 'divisive' political structures. However, in mid-1980s, as a leading political figure during the delicate negotiations between Britain and China over Hong Kong's future, she was seen as representing the interests of Hong Kong people, including in direct discussions with the British Government. As concern rose about the impending transfer of Hong Kong to China, she campaigned, unsuccessfully, for the unfettered right of Hong Kong people to live in Britain.
In 1985, newly chosen as Senior Unofficial Member of the Legislative Council - a post she held for three years, Dunn was invited by the Chinese Government to join the Basic Law Drafting Committee, as was Sze-yuen Chung, her equivalent in the Executive Council. The pair considered and then declined the opportunity, in order to avoid any possible conflict of interest.
In 1988, directly following her time as Senior Unofficial Member of the Legislative Council, she took up the same role in the Executive Council 1988–1995, succeeding Chung.
In June 1989, amid the fallout from the Tiananmen Square crackdown, Dunn discovered or revealed her belief in democracy for Hong Kong, saying "Apart from lunatics, condemned prisoners, and small children, Hong Kong people must be the only people in the world who seem to have no right to decide their own fate."
She again led delegations to lobby the British Government, asking for faster progress towards more democracy, representing Hong Kong people's shock and concern at what had happened in Beijing, and again calling for all Hong Kong people to be entitled to British citizenship. In a meeting in Beijing with Deng Xiaoping, she and Chung incurred his wrath by insisting they were there as representatives of the Hong Kong people. Deng rejected the idea that Hongkongers' views had any part to play in determining how the territory would be run.
Ultimately though, she abandoned the effort to secure greater freedoms for Hong Kong and its people, under fierce opposition from the Beijing government.
In 1992, when newly arrived last Governor of Hong Kong Chris Patten announced that his would be an executive-led government, Dunn, as Senior Member, persuaded her Exco colleagues to jointly resign, to give Patten the freedom to set up his own body. He accepted but immediately reappointed Dunn herself to her position.
Dunn resigned from the Executive Council, bringing her Hong Kong political career to a close, in June 1995. The move was criticized as indicating, or giving the impression that, she had lost confidence in Hong Kong, ahead of the 1997 transfer of sovereignty. She and her husband now live in Britain.
Dunn joined the Swire Group in 1964 and remains an Executive Director of John Swire & Sons Limited. Until May 2015 she was a director of Swire Pacific Limited.
Since 1990, she has been a non-executive director of the HSBC Group, and was a non-executive Deputy chairman between 1992 and 2008. She was also a non-executive director of The Hongkong and Shanghai Banking Corporation Limited from 1981 to 1996.
In the New Year Honours List of 1989 Dunn was elevated to the rank of Dame Commander of the Most Excellent Order of the British Empire (DBE). In 1990 Dunn was created a life peer as Baroness Dunn, of Hong Kong Island in Hong Kong and of Knightsbridge in the Royal Borough of Kensington and Chelsea and became a member of the House of Lords. In July 2010, it was announced that Baroness Dunn had given up her seat in the Lords to retain her non-domiciled tax status following the passing of the Constitutional Reform and Governance Act 2010.Miss Lydia Dunn (1940–1976)
Miss Lydia Dunn, JP (1976–1978)
Miss Lydia Dunn, OBE, JP (1978–1983)
Miss Lydia Dunn, CBE, JP (1983–1989)
Dame Lydia Dunn, DBE, JP (1989–1990)
The Right Honourable The Baroness Dunn, DBE, JP (1990–)
In the Kingdom of the Blind (1983)