Sethu Lakshmi Bayi was born in Mavelikara and Kerala Varma on 19 November 1895 to Ayilyam Nal Mahaprabha of the Utsavamadhom Palace. Her mother belonged to a branch of the Kolathunad Royal Family which had settled in Travancore in the late 18th century and was one of the artist's daughters Raja Ravi Varma. The Mavelikara family was closely associated with the Travancore Royal Family because the direct aunts of Mahaprabha and sister Thiruvathira Nal Bhagirathi Bayi Uma Kochukunji, Senior Maharani Lakshmi Bayi and Junior Maharani Parvathi Bayi were adopted and installed as Travancore's Maharanis in 1858.As Senior Rani Lakshmi Bayi, who was married to Kerala Varma Valiya Koil Thampuran was childless while the Junior Maharani Parvathi Bayi had only sons, this adoption, which was the 6th in the Travancore House, was without results.
The involvement of females to continue the line and succession was crucial in the prevalent matrilineal system of inheritance known as Marumakkathayam. The royal family came to consist solely of Maharajah Moolam Thirunal, Rani Lakshmi Bayi and her two nephews with the death of the Junior Maharani Parvathy Bayi in 1893, followed by that of the eldest of her three sons in 1895. Senior Maharani decided to incorporate into the Travancore Royal Family the daughters of her nieces, Mavelikara's Mahaprabha and Kochukunji.A daughter was subsequently born in 1895 to Mahaprabha, and the child was named Sethu Lakshmi. In 1896, the next year, Kochukunji gave birth to a similarly named daughter, Sethu Parvathi. In 1900 Maharani Lakshmi Bayi formally applied for the adoption of her grandnieces by Maharajah Moolam Thirunal to perpetuate the ruling line and hence the adoption of the two children.The adoption itself met with some opposition from other branches of the Kolathunad family, who nominated women from their families as well as objections from the First Prince Chathayam Thirunal Rama Varma, but these were overcome and Sethu Lakshmi was adopted as Junior Maharani in the Travancore Royal Family and became known as Thirunal Sethu Lakshmi Bayi and Sree Padmanbahasevini Pooradom.
In 1924, Bayi received news from Sethu Lakshmi that King Moolam Thirunal was critical because of sepsis. The Maharajah died as heir to the throne leaving the 12-year-old Sree Chithira Thirunal Balarama Varma behind. As the Maharajah was still a minor, facing opposition from the mother of the minor Maharajah, Sethu Parvathi Bayi, it was agreed that Sethu Lakshmi Bayi would be Regent before the minor King came of age in 1930. Sethu Lakshmi Bayi was thus proclaimed Travancore's Regent Maharani, and began the regency in September 1924.Sethu Lakshmi Bayi had a tense relationship with the Maharaja 's mother, marked by mistrust and bitterness. Sethu Lakshmi Bayi was decorated with the Crown Order of India in 1929.
Amid many events, including Vaikom Satyagraha, the regency had been opening. Soon after in 1925 Mahatma Gandhi visited Sethu Lakshmi Bayi. Their meeting resulted in a royal declaration that opened to all castes all of the public roads (except the eastern road) to Vaikom Mahadeva Temple. In his journal Young India (26 March 1925), Mahatma Gandhi called it a "bedrock of democracy."
In Travancore, the regency was characterized by many social reforms. Animal sacrifice at Travancore was banned in 1925. In 1926 devadasi system was abolished by Sethu Lakshmi Bayi. In the same year, changes to the Marumakkathayam heritage and family structure were made in the Travancore Nair Act and eventually, in 1928, the system was completely abolished, creating a patrilineal nuclear family system in Travancore. In 1925, a law was also passed to encourage and establish local self-government in rural areas, in the form of Panchayats. She passed a notorious Newspaper Regulation Act in 1926 which curbed various press rights.So the regency of Sethu Lakshmi Bayi came to an end in November 1931, after 7 years, and the Heir Apparent Chithira Thirunal Balarama Varma became the King of Travancore. Travancore 's revenues had risen to more than Rs 250,00,000/- during the regency.