He was educated at the City of London School and at Balliol College, Oxford, where he graduated in modern history in 1882.
He became assistant-editor of the Dictionary of National. In 1890 he became joint editor, and on the retirement of Sir Leslie Stephen in 1891 succeeded him as editors Lee himself contributed voluminously to the Dictionary, writing some 800 articles, mainly on Elizabethan authors or statesmen. While still at Balliol he had written two articles on Shakespearean questions, which were printed in The Gentleman"s Magazine, and in 1884 he published a book about Stratford-on-Avon, with illustrations by Edward Hull.
His article on Shakespeare in the fifty-first volume (1897) of the Dictionary of National formed the basis of his Life of William Shakespeare (1898), which reached its fifth edition in 1905.
In 1902, Lee edited the Oxford facsimile edition of the first folio of Shakespeare"s comedies, histories and tragedies, followed in 1902 and 1904 by supplementary volumes giving details of extant copies, and in 1906 by a complete edition of Shakespeare"s works. Lee received a knighthood in 1911.
Between 1913-1924 he was Professor of English Literature and Language at East London College, what is now Queen Mary, University of London. There are personal letters from Lee, including during his last illness, in the T.F. Tout Collection, John Rylands Library, Manchester.
He was a member of the American Academy of Arts and Sciences.