It was while working at 20th Century Fox that Lyon discovered a young actress, Norma Jeane Dougherty, renamed her Marilyn Monroe, organised her first colour screen test, and signed her to her first studio contract. Of Monroe, he is quoted as saying that she was "Jean Harlow all over again".

Lyon married Bebe Daniels (1901-1971) in 1930, at the height of his success. Daniels was a star in her own right, carving out a career as a child actress in Hollywood's silent movies. She made over 230 films and, from the 1950s, worked on radio and television to much acclaim in England.