Born in 1831 to Paki and Konia, Pauahi was a great-granddaughter of Kamehameha I and at the time of her death, was his last direct descendant. From the age of eight, she attended the Royal School along with other ali'i children. In 1850, she married Charles Reed Bishop, a New Englander who had arrived in the Islands four years earlier.

In 1872, Kamehameha V, ill and close to death, asked Pauahi to be his heir but she declined. She traveled abroad with her husband in 1876 at which time they were received by Pope Pius IX and were presented to the court of Queen Victoria in England.

Pauahi's cousin Princess Ruth died in 1883, leaving the bulk of her estate to Pauahi. With this gift, Pauahi came to own most of the Kamehameha lands, totaling almost nine percent of land in the Islands. Though Pauahi and her husband had no children of their own, they both loved children and she wanted her property to benefit the children of Hawai'i. The year before she died, she added Article Thirteen to her will, directing the establishment of Kamehameha Schools and a board of trustees to oversee the school's mission of educating girls and boys of Hawaiian descent.

Pauahi died in 1884 and shortly after, the Kamehameha School for Boys opened in 1887 and the Girls' School opened in 1894. Kamehameha Schools continues to educate Hawaiians today and is still funded by the Bernice Pauahi Bishop Estate.