Lyall was born in Surrey, England, the second son of Alfred Lyall and Mary Drummond Broadwood. After attending Eton College and Haileybury College, he entered the Indian Civil Service. He held increasingly senior positions in the Service, including Home Secretary to the Government of India in 1873, Foreign Secretary to Government of India from 1878-1881, and Lieutenant-Governor of North-West Provinces and Chief Commissioner of Oudh from 1882-1887. As Foreign Secretary he helped negotiate peace and the creation of a monarchy in Afghanistan; he was in favor of Indian self-government. In 1887 he retired to England.