Paoli did her schooling the Loreto School, Bowbazar. Later, she attended the Vidyasagar College in Kolkata, from where graduated in chemistry with honours. Subsequently she also earned a postgraduate degree in chemistry at the Rajabazar Science College of the University of Calcutta.
She started her career in a mega serial 'Tithir Atithi" replacing another actress Rimhjim Mitra.Paoli had come into the focus after the success of Kaalbela directed by Gautam Ghose. She won accolades for her performance. She was selected for a role in Italo Spinelli's film 'Choli Ke Peeche' after Shahana Goswami and Nandana Sen backed out of the project citing excess of nudity involved. Paoli was chosen from a long list of 28 probables, and reportedly said that she has no inhibitions in shedding clothes if a role demands it. Paoli made her debut with the Bengali film Agnipariksha in 2006 and since then has done quite a few films. She was also featured in much talked about Shob Charitro Kalponik, Bipasha Basu's debut Bengali film directed by Rituparno Ghosh.
Italian director Italo Spinelli has chosen Paoli to play a tribal woman in his forthcoming film Choli Ke Peechhe, based on a short story by Mahasweta Devi. Shera Bangali is an award given by Star Ananda to those Bengalis who have not only achieved excellence in their respective fields but have also helped to bring Bengal in the national as well as international limelight.
Paoli Dam faced severe criticism from several quarters after she took part in an explicit scene containing full frontal nudity in the 2011 movie Chatrak (Mushrooms). She is considered as the third Bengali actress to have done such an explicit nude scene in a Bengali movie.