A three-time All-Star, he won the Cy Young Award in 1977, the first American League reliever so honored. He led the AL in saves in 1972 and 1976. With the Yankees, Lyle was a member of the World Series champions in 1977 and 1978, both over the Los Angeles Dodgers.

Lyle co-authored, with Peter Golenbock, The Bronx Zoo, a 1979 tell-all book which chronicled the dissension within the Yankees in its World Series Championship seasons of 1977 and 1978. From 1998–2012, Lyle served as manager of the Somerset Patriots, an independent baseball team of the Atlantic League of Professional Baseball.

Lyle is credited, alongside Rollie Fingers, with expanding the role and importance of the reliever in professional baseball beginning in the 1970s.

During spring training prior to the 1972 season on March 22, Lyle was traded to the New York Yankees for Danny Cater and a player to be named later (Mario Guerrero). The transaction proved to be one-sided as Lyle became the Yankees' bullpen ace, establishing himself as one of the best relief pitchers of the 1970s. He played a major role in the Yankees' three straight pennants from 1976 to 1978, and World Series titles in the last two of those years. In 1972, he saved 35 games, an American League record, and a major league record for left-handers; Ron Perranoski had set both marks in 1970, but John Hiller would surpass Lyle's total with 38 in 1973. In 1972, Lyle also became the first southpaw to collect 100 saves in the American League. He also finished third in the 1972 MVP voting.

Lyle again led the league in saves in 1976, and in 1977 became the first AL reliever to win the Cy Young Award. He was named an American League All-Star in 1973, 1976 and 1977. In 1976, he broke Hoyt Wilhelm's American League record of 154 career saves, and the following year eclipsed Perranoski's major league mark for left-handers of 179 career saves. Through 1977, Lyle had compiled 201 career saves, and was within range of Wilhelm's career big-league record of 227. Lyle was associated with a trademark song to herald his entry into games, Pomp and Circumstance March No. 1 in D.

But despite Lyle's 1977 Cy Young Award, the Yankees decided to upgrade the closer position in the 1977 off-season. To this end they signed Pittsburgh Pirates' reliever Rich Gossage, who had been an All-Star the previous three years and had led the American League in saves while with the Chicago White Sox in 1975. Gossage was a power pitcher as opposed to Lyle's more slider-based approach and could throw his fastball much harder than Lyle could, at or near 100 MPH on a consistent basis. Although Lyle was not opposed to the Yankees' move, he later said that they should have gotten rid of him after they signed Gossage. Lyle knew the 26-year-old Gossage was a rising star who would eventually become the go-to reliever, and Lyle was not okay with a reduced role in the Yankees' bullpen.

Lyle finished his 16-year career with 238 saves, a 2.88 ERA, and a record of 99–76 in 899 games pitched — all in relief. In 1985, Fingers broke his American League record for career saves; and in 1991 Righetti surpassed Lyle's major-league record for career saves by a left-hander, though Lyle still holds the AL mark of 232.