Bartz was born in Winona, Minnesota. Her mother, Shirley Bartz, died when Carol was eight years old. A few years later, she and her younger brother Jim moved from Minnesota to the home of their grandmother, Alice Schwartz, on a dairy farm near Alma, Wisconsin.

In high school, Bartz did well in mathematics, and was also homecoming queen. She began college at William Woods University in Fulton, Missouri, and subsequently transferred to the University of Wisconsin–Madison where she received a bachelor's degree in computer science in 1971. While in college, she supported herself as a cocktail waitress.

Bartz was also awarded an Honorary Doctorate of Humane Letters degree (2002) from New Jersey Institute of Technology, an Honorary Doctor of Science degree from Worcester Polytechnic Institute and an honorary Doctor of Letters degree from William Woods University.

In 1976, Bartz went to work at the manufacturing conglomerate 3M, but left after her request to transfer to the headquarters was denied; she was told that "women don't do these jobs". Bartz moved on to the computer industry, including jobs at Digital Equipment Corporation and Sun Microsystems.

She became CEO of Autodesk in 1992. According to Forbes, Bartz "transformed Autodesk from an aimless maker of PC software into a leader of computer-aided design software, targeting architects and builders." She is credited with instituting and promoting Autodesk's "3F" or "fail fast-forward" concept — the idea of moulding a company to risk failure in some missions, but to be resilient and move on quickly when failure occurs. She stepped down as CEO in 2006 and became the executive chairman of the board. Autodesk net revenue substantially increased during her tenure.

Bartz served on several boards of directors, including those of Intel, Cisco Systems, Autodesk, BEA Systems, Network Appliance, and the Foundation for the National Medals of Science. Additionally, she has been a member of the United States President's Council of Advisors on Science and Technology.

On January 13, 2009, Bartz was named CEO of Yahoo!, the internet services company which operates the third most-visited website in the world. She succeeded co-founder Jerry Yang in that position. During a conference call with financial analysts later in January 2009, she announced her intention to make sure Yahoo! got "some friggin' breathing room" so the company could "kick some butt." Rob Hof of Business Week was skeptical that Bartz or anyone else could save the company: “it’s not yet clear if Bartz can turn Yahoo around no matter how good she may be.”

In May 2009, Reuters reported that she had already "worked through an impressive checklist" at her new company, "upending the organizational structure, replacing executives and cutting costs including 675 jobs, or 5 percent of the workforce." Analysts described her efforts as precisely what the company required, but, as reporter Alexei Oreskovic observed:

For Yahoo's (YHOO.O) ranks, still shell-shocked from deep cuts in 2008 — including 1,600 axed jobs — the hope that Bartz brings is increasingly mixed with a dose of fear and uncertainty. Yet broad support remains for Bartz despite the tough talk, canceled holiday parties and forced vacations that have come to define her era.

With a new round of job layoffs and the removal of a number of Yahoo! sites, "anxiety within the ranks has been exacerbated by what some say is a growing sense of secrecy", for which Bartz has a notable reputation: "The informal flow of information once common within the company has come to a halt." Bartz was also quoted to have said that she would “drop-kick to fucking Mars” employees who leak to the press . Oreskovic quoted a fearful anonymous insider: "We are all sort of wanting to believe in her because we really want to see Yahoo! turned around, but it still doesn't make it any less scary when you don't hear about what's coming up. Everything is on a need-to-know basis."