Katherine (aka Kay), who dabbled in affairs with her estate stable boys, was furious to learn that her teenaged paid companion, Jill, was having an affair with her estranged husband Phillip Chancellor II. A drunk Kay drove her car off a cliff with Phillip, who'd just won his divorce from Kay, as a passenger. Kay survived but Phillip later died of his injuries. Later, Katherine failed to buy Jill's son – whom she named Phillip Chancellor III – from her. Kay did succeed in having Jill and Phillip's deathbed marriage annulled. Phillip's death fueled the Kay/Jill feud for many years.

Next, Kay fell for hairdresser Derek Thurston, who desired Jill. Kay took a bullet intended for Derek and faked paralysis to hang onto him. Later, Kay fell in love with Felipe Ramirez who held her captive. When Kay won her freedom, she dumped Derek.

Kay's next love interest was Rex Sterling. Unbeknownst to Kay, Jill had found Rex (aka Brian Romalotti, the ex-con father of Danny Romalotti and Gina Roma) on a park bench living as a homeless man. Jill gave Rex a makeover (including his name) and set him up with Kay. During this time, Jill and Kay found a common threat in Nina Webster, whom Phillip III had impregnated.

Kay and Rex wed, but she was kidnapped by Clint Radison, Rex's former prison mate, and replaced with Marge, a waitress who could – and did – pass for Kay's double. Marge helped Kay escape. Clint was sent back to jail. Alas, Kay and Rex's reunion was short-lived. A thief named Norman Peterson, who wed Kay's maid Esther under false pretenses, killed Rex after Rex caught him trying to break into the Chancellor safe.

Katherine allowed rival Jill to live with her after she ended her second marriage to John Abbott. Jill found documents from Phillip that indicated his desire for her to live in the Chancellor mansion. The judge ruled that both women could share the lavish estate. A despondent Kay moved out and lived in a homeless shelter where she was united with her granddaughter Mackenize Browning, whose father is Kay's son Brock Reynolds. After Kay moved back into the mansion, Ralph, Mac's abusive stepfather, kidnapped the matriarch.

Kay suffered a stroke after her old pal Charlotte Ramsey revealed to her that Jill was the daughter she gave up for adoption while still married to Brock's father, Gary Reynolds. Jill learned the truth and helped her mother recover. Kay failed to reconnect successfully with Jill's birth father Arthur Hendricks after she suspected Arthur had a hand in his wife's death in another state.

Katherine checked into rehab after she started drinking again. She took on a more active role in the running of Chancellor Industries by hiring Jack Abbott to run her company after his predecessor tried to embezzle Kay's funds.

Chancellor bailed out a failing Jabot Cosmetics, which resulted in Kay becoming a "go to" person in times of crisis for Jabot. Kay had to step in and remove Jack from his position after a tainted cosmetics product was linked to the death of Emma Gibson. Kay was saddened when Mac opted to leave town once again, but also feels proud that her granddaughter is helping with the rebuilding of New Orleans.

Unaware that Jack secretly owned House of Kim, Kay sold Jabot to the Japanese conglomerate firm, and returned her focus to Chancellor Industries. The return of Jill's son Billy to Genoa City sparked conflicts between Kay and Jill, and old wounds were re-opened between mother and daughter. It was soon discovered that Billy had a gambling problem. Meanwhile, Katherine's dear old friend John Abbott had a stroke and passed away. After everyone said their goodbyes, Jack sent Billy to Japan to hopefully take care of his problem and work on the family business interests.

Ethan "Cane" Ashby, a handsome bartender from Australia, landed in Genoa City in search of his real mother. Katherine began suffering from nightmares that she didn't understand. Psychic Sylvia Browne was called in to see if Katherine was haunted or if her dreams were trying to tell her something. Katherine soon remembered that during her fuzzy days as a raging alcoholic, she had switched Jill's son with Phillip Chancellor with another baby. The two women, who have come a long way in their troubled relationship, realized that the boy they raised as Phillip Chancellor was a stranger and the real Phillip Chancellor was still out there. With a little accidental help from social climber Amber Moore, Cane was revealed as the lost Chancellor heir and Billy Abbott's lost sibling.

Both Jill and Katherine bonded with the kind spirited Aussie who quickly fit into the family. They even helped him with they found out that Amber Moore duped him into believing they were wed during a drunken trip to Vegas. Cane, along with J.T., was able to return the favor when he helped rescue his grandmother during the collapse of the parking garage at the Clear Springs mall. Cane moved on to the recently divorced Lily Winters and Katherine, seeing a bit of her in the young Amber Moore, began writing her memoirs with Amber's help. Chloe Mitchell arrived in town and set her sights on Cane, breaking up the newly engaged couple by convincing Cane that he was the father of her child after another drunken encounter. Lily stepped back so Cane could do the right thing. Soon it was revealed that Chloe was Esther's daughter Kate and she was out to get everything she felt she deserved.

Katherine got a blast from the past when her look-a-like Marge contacted her. Marge suffered from a drinking problem and Katherine quickly volunteered her help. She offered to drive her to rehab and pay for her stint but along the way the car crashed and Marge was killed. Dressed in Katherine's clothes, Jill and Nikki assumed that Katherine was dead but the real Katherine had been found by Marge's close friend Murphy, who took her to his home. Katherine had lost her memory but it slowly started coming back. Murphy and Katherine soon grew close and he supported her decision to reveal who she really is. When she showed up at the Chancellor Mansion, Jill had her arrested as an imposter. Kevin used Katherine's money, that he had found after she had left in a hurry to join Marge, to help bail her out. Katherine than tried to convince Nikki that she was Katherine but Nikki thought it was a cruel joke. Finally, more of her memory returned and she was able to convince Amber of who she really was.