Lyon, the son of former Hawthorn player Peter, was born in Devonport and attended Melbourne High School. He was recruited from Kyabram and debuted in 1986 with the Melbourne Football Club, playing in a Grand Final in 1988. He quickly became a dominant player in the AFL, winning his first Melbourne Football ClubBest and Fairest Award in 1990. He became Melbourne's captain in 1991, and eventually became the longest-serving Melbourne captain in club history until he was released from the role after the 1997 season due to the club's belief that he would suffer from too many injuries. Lyon was known for playing with many back injuries and his presence on the field despite such adversity saw him as an inspiration to teammates.
Lyon finished his career having won two Melbourne Best and Fairest awards, three All-Australian teams. His career ended as a result of increasing back problems. A broken leg, footage of which is often played on The AFL Footy Show ended his 1987 season. In the end he finished with 226 AFL games and 426 goals in 1999, third best all-time for a Melbourne player.
Lyon's radio career began in the late 1990s on 3AW, and in 2004 he hosted Morning Glory on SEN 1116. In 2005 he returned to 3AW, and appeared on Sports Today as well as providing special comments for the station's AFL coverage. In 2007, Lyon moved to Triple M where he currently co-hosts The Friday night Rub with James Brayshaw. His persona as "The Lone-Wolf" who likes to keep to himself and be on his own is the source of much humor on The Rub. Lyon as has a group of twitter followers dubbed "The Wolf-Pack" whom which he interacts with during The Rub and game broadcast, usually including positive feedback and comments on his own work.
Since his retirement, Lyon has dabbled in coaching. He has coached the Australian International rules football team debuting in 2001 and remained coach for four successive seasons before being replaced by Kevin Sheedy. His International Rules record remains as two heavy losses and two narrow wins.
Despite being touted as a potential Melbourne Football Club coach, Lyon has vowed not to re-enter senior coaching. In 2009, he coached the Victorian under 16 representative side at the AFL championships.