Karan began her career as an assistant designer with Anne Klein in the late 1960s, where she was eventually promoted to associate designer in 1971. When Anne Klein herself died in 1974, Takihyo Corporation of Japan became the new owner and Karan, together with her former classmate and friend Louis Dell'Ollio, became head designer of the house. In 1984, Karan left Anne Klein and, together with her then husband Stephan Weiss and Takihyo Corporation, started her own business "to design modern clothes for modern people". She showed her first women's clothing collection in 1985.

Karan became well-known for her 'Essentials' line, initially offering seven easy pieces which could all be mixed and matched, and created a fully integrated wardrobe. Karan always insisted that she would only design clothes, like jersey dresses and opaque Lycra tights, that she would also wear herself. She was once described in the early 1990s by the New York Times as “[Ed Koch] in a stretchy black dress”.

In 1988, Karan, nicknamed The Queen Of Seventh Avenue by the time, extended her women's 'Donna Karan New York' line by a less expensive one for younger women, called DKNY. Two years later, she created DKNY Jeans, a denim-inspired collection. DKNY for men was launched in 1992, one year after the 'Signature' line for men had been presented. In its heyday in the 1990s, the Donna Karan portfolio, for men and women, consisted of the top-of-the-line DKNY collection (black label, couture collection, partly hand-made, limited distribution) and its variation, the 'Donna Karan Signature' collection (golden label, designer sportswear, wider distribution), the DKNY lifestyle diffusion line, and the lower-priced DKNY Jeans (and DKNY Active) lines.[4] The portfolio was later complemented by a children's collection, beauty products, accessories and furniture. Sales rose up to 510.1 million in 1995 from $96.6 in 1991. More than half of the sales were attributed to the DKNY lines, couture contributed 15% and about 30% of the sales were generated by men’s clothing, accessories, cosmetics and other products. Almost a third of the sales were made in exports.