There's an early moment in Funny Face, the 1957 Stanley Donen musical, when Kay Thompson, playing a New York fashion editor, bursts into her chic monochrome office and declares herself devoid of inspiration for the new season. It's the question of colour that bugs her. Green is "obscene", blue is "through" and red is "dead". Then Thompson's gimlet eye alights on a piece of pink cloth and her face comes alive. From now on, she declares, women of the world must "Think Pink!" It's not just a question of frocks, but of repainting the entire feminine world. A cutaway shot suggests that, from now on, even shampoo should be rosy.

Thompson's character was based on Diana Vreeland, the legendary fashion editor at Harper's Bazaar and American Vogue  and she really was a legend, complete with misty beginnings, contested moments and narrative loops. And the "Think Pink!" number was more than a take-off of generic magazine silliness. Vreeland had become famous in the 1930s for writing her "Why Don't You" column, which issued a series of diktats disguised as rhetorical questions. Such as "Why don't you rinse your blond child's hair in dead champagne to keep it gold as they do in France?" Or embroider "enormous red lobsters on a pure heavy silk tablecloth"? Kay Thompson's pink shampoo was, by contrast, really rather pallid.

It would have been easy for Amanda Mackenzie Stuart to write a similarly pink book, one that is frothy and full of darling anecdotes about what DV, as she was mostly known, said or did next. But this is not a pink book, and the image of Vreeland on the front  striking to be sure, but austerely monochrome  is a clue that Mackenzie Stuart has serious art-historical concerns. What she does in this fine biography is situate Vreeland firmly in her time and place while taking nothing away from her idiosyncratic  often downright bonkers  talent.

The first of Vreeland's many equivocations was that she had been brought up in Paris and spoke no English until the age of 11 when her family left hurriedly in 1914. It was a myth of origin that meant, to Americans at least, that DV embodied a "European" sensibility, complete with a spiritual connection to Parisian haute couture. In fact Vreeland was raised in upper east side Manhattan, on the outer edges of the upper 400. Her mother was the scion of a smart southern colonial family, but her English father came from Harringey in north London, where his father had worked for the post office.

The idea that Vreeland was self-created is hardly a revelation. No one who stalked around with blue-black lacquered hair and rouged ears could be presumed to come from a cookie cutter. Mackenzie Stuart, however, is not concerned with debunking for debunking's sake  for what, really would be the point in endlessly pointing out just how much DV liked to tickle up the truth? Instead, she is interested in how Vreeland's extravagant self-fashioning worked both as psychological armour and as a triumphant calling-card in the world of mid-century glossy magazines.

Vreeland got her break in 1936 when she went to work for Carmel Snow at Harper's Bazaar. She did it because she needed the money, although she always managed to give the impression that she was essentially an amateur, someone who worked for the sheer fun of it. But any idea that Vreeland stormed in and shook up Bazaar with her "European" sensibility is entirely at odds with the realpolitik of periodical publishing. With the tiger instincts of any editor worth her salt, Snow insisted on marking her rank by going to the Paris couture shows alone. That left Vreeland with 7th Avenue as her beat, the home-grown rag trade that churned out not-quite-right clothing for not-quite-top-drawer people.

It was the second world war, really, that made DV. With Paris haute couture either in mothballs or fraternising with the Nazis, 7th Avenue finally got its moment. Vreeland seized her chance to embrace such native talents as Claire McCardell and persuade them to make a new kind of wardrobe for a new kind of wartime American woman: peppy, pared-down and practical.

If the 1940s allowed Vreeland to emerge from Snow's shadow, the 1960s crowned her as a fashion empress in her own right when she took over as editor at American Vogue. Even though she was by now in her 60s herself, Vreeland really "got" the new decade. She coined the term "youthquake", helped Jackie Onassis choose her inaugural ballgown, and was the first person to put a picture of the Beatles into an American publication. Riffing on the glamour of "jet setting", she sent Richard Avedon to Japan and Norman Parkinson to Tahiti to do extraordinary things involving white stallions, steam trains and trunkloads of beautiful clothes.

This sort of thing cost money, though. While DV's filmic fantasies mostly succeeded, there were a few misfires, usually when the clothes were not shown in sufficient detail to make the advertisers happy. And some of her wilder ideas  such as swaddling the model Verushka in velvet and fur in the middle of the Arizona desert  didn't play well in the malls of the mid-west. Her sacking in 1971, after less than a decade at Vogue, hit her very hard. But to her surprise, and everyone else's, she got a magnificent third act when she was appointed as consultant to the Costume Institute at the Metropolitan Museum of Art.

Let loose in the museum's archives, Vreeland used her imagination to construct elaborate fashion "stories" along the lines of Romantic and Glamorous Hollywood Design and Fashions of the Hapsburg Empire. Curators and fashion historians looked on aghast as DV mixed up originals and replicas or put objects together that would never have met in real life. If Vreeland had been of an analytical turn of mind she would have explained that she was engaged not in recreating the material past but in retelling it. As it was she just announced that everything was "Duh-vine", charged $150 for tickets to the annual gala dinner, and let the money do the talking.

Mackenzie Stuart gives us the stories she knows we want to hear. Like the time DV sent out her temp, who just happened to be Lee Radziwill (Jackie O's younger sister), to buy a bunch of carrots because she wanted her editorial team to hold in mind a very particular shade of orange. Getting to the core of Vreeland herself is a harder task, since seldom was a biographical subject quite so unreflective of her own process. Still, Mackenzie Stuart makes a persuasive stab at giving us an account of Vreeland as a plain girl, from a tense home, who decided to make herself into something rather marvellous. And that early vulnerability, which made the later narcissism just-about bearable, stayed touchingly with her right through her long life.

In 1957, on seeing Kay Thompson spoof her in Funny Face, Vreeland marched out of the cinema, declaring later with more hurt than perhaps she realised, "I'm too real for teasing."

 Kathryn Hughes's biography of Mrs Beeton is published by Harper Perennial.

 This article was amended on 7 March 2013. The original referred to the Costume Institute at Museum of Modern Art. That should have been the Metropolitan Museum of Art and has been corrected.