He hailed from Tan 郯 (modern Tancheng 郯城, Shandong) and hold the office of regional inspector (cishi 刺史) of Youzhou 幽州. He was known for his loyalty and sincerity and was made counsellor (xiang 相) of the Prince of Ganling 甘陵. For his effort in disaster relief moved to Chamberlain for the Imperial Clan (zongzheng 宗正).
When rebellion broke out at the end of Emperor Lingdi's 漢靈帝 (r. 167-188) reign, Liu Yu as appointed regional governor (mu 牧) of Youzhou, for his victory over the rebels promoted to Defender-in-chief (taiwei 太尉), given the title of Marquis of Rongqiu 容丘侯.
When Dong Zhuo 董卓 usurped the power of the central government the title of his office was changed to Minister of War (dasima 大司馬) and he was transferred to the marquisate of Xiangben 襄賁侯. In 190 he was made Grand mentor (taifu 太傅) but never received his charge. Also during that time he proved to be a very careful governor caring for the people in times of hardship.
After Yuan Shao 袁紹 had occupied the capital Luoyang 洛陽 and controlled the whole eastern part of the empire, Yuan Shao and Han Fu 韓馥 suggested that Liu Yu, as Chamberlain for the imperial clan, be made emperor, but Liu Yu refused. He was later killed by Gongsun Zan 公孫瓚, a warlord of the northeastern part of China.