She was a Princess because she married Prince Charles and she was of Royal blood. She was a Lady. That's the best answer this American can give off me head. Any Brits know better?
Diana was not of royal blood, although she came from a titled family. She was technically a commoner (an irrelevant matter in any case); on marrying a prince a woman is given the title of Princess. Similarly, Kate Middleton is now known as Princess Catherine, as well as her title of Duchess of Cambridge.
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