Lahey was born in Jersey City, New Jersey. His formal art training began at the Art Students' League in New York and continued with summer trips to Europe. While in New York, Lahey was a student of Robert Henri, George B. Bridgman, and Max Weber. He served in the Navy's Camouflage Corps during World War I, after which he returned to Jersey City to open a studio. In 1921, he was appointed to the faculty of the Minneapolis School of Art, a move which began his long career in teaching. He returned to the Art Students' League to teach in 1923. Lahey later moved to Washington, D.C. to become the fifth principal of the Corcoran School of Art. He also held a faculty appointment at Goucher College.
Lahey continued his own work throughout his teaching career. Some of his more famous portraits were caricatures of actors, including John Barrymore and Eddie Cantor. He is represented in the collections of the Metropolitan Museum of Art, the Whitney Museum of American Art, and the Smithsonian American Art Museum. Lahey has been honored with Tuthill Prize from The Art Institute of Chicago and the Beck Gold Medal for portraiture from the Pennsylvania Academy of Fine Arts. He was a member of the American Society of Paints, Sculptors, and Engravers, and The Washington Society of Artists.