However, studying architecture under Oskar Strnad, Lihotzky was winning prizes for her designs even before her graduation. Strnad was one of the pioneers of sozialer Wohnbau in Vienna at the time, designing affordable yet comfortable council housing for the working classes. Inspired by him, Lihotzky understood that connecting design to functionality was the new trend that would be very much in demand in the future. After graduating, she, among other projects, worked together with her mentor Adolf Loos, planning residential estates for World War I invalids and veterans.
In 1926 she was called to the Hochbauamt of the City Council of Frankfurt am Main, Germany. There, she continued her work, designing kindergartens, students' homes, schools and similar community buildings. It was in Frankfurt that she met work colleague Wilhelm Schütte, whom she married the following year. In 1926 Lihotzky also created the Frankfurt Kitchen, which was the prototype of the built-in kitchen as it is known today. Based on the scientific research by U.S. management expert Frederick Winslow Taylor, Lihotzky used a railroad dining car kitchen as her model to design a "housewife's laboratory" using a minimum of space but offering a maximum of comfort and equipment to the working mother. The Frankfurt City Council eventually installed 10,000 of her mass-produced, prefabricated kitchens in newly-built working-class apartments.
In 1938 Schütte-Lihotzky, together with her husband, was called to Istanbul, Turkey, to teach at the Academy of Fine Arts. She also designed kindergarten pavilions based on the ideas of Maria Montessori. On the eve of World War II Istanbul was a safe meeting place for many exiled Europeans, and the Schüttes encountered artists such as the musicians Béla Bartók or Paul Hindemith. In Istanbul Schütte-Lihotzky also met fellow Austrian Herbert Eichholzer, an architect who at the time was busy organizing Communist resistance to the Nazi regime. In 1939 Schütte-Lihotzky joined the Austrian Communist Party (KPÖ) and in December 1940, of her own free will, together with Eichholzer travelled back to Vienna to secretly contact the Austrian Communist resistance movement. However, she was arrested by the Gestapo on January 22, 1941, only a few weeks after her arrival. While Eichholzer and other "conspirators", who had also been seized, were charged with high treason, sentenced to death by the Volksgerichtshof and executed in 1943, Schütte-Lihotzky was "only" sentenced to 15 years of imprisonment and brought to a prison in Aichach, Bavaria, where she was eventually liberated by U.S. troops on April 29, 1945.
After the war, she went to work in Sofia, Bulgaria, eventually returning to her native Vienna in 1947. However, her strong political views -- she remained a Communist -- prevented her from receiving any major public commissions in post-war Austria, despite the fact that innumerable buildings all over the country had been destroyed and had to be rebuilt (Wiederaufbau). Consequently, apart from designing some private homes, Schütte-Lihotzky worked as a consultant in China, Cuba and the German Democratic Republic. In 1951 she separated from her husband, Wilhelm Schütte.
Margarete Schütte-Lihotzky died in Vienna on January 18, 2000, five days before her 103rd birthday, of complications after contracting influenza. She was interred in an Ehrengrab at the Zentralfriedhof, Wien-Simmering.