Campion was born in Wellington, New Zealand, the second daughter of Edith (née Beverley Georgette Hannah), an actress, writer, and heiress, and Richard M. Campion, a theatre and opera director. Her maternal great-grandfather was Robert Hannah, the shoe manufacturer of Antrim House. Her father was from a family of Exclusive Brethren. With her older sister, Anna, born a year and half before her, and brother, Michael, born seven years after, Campion grew up in the world of New Zealand theatre. Her parents founded the New Zealand Players theatre group. While initially rejecting the idea of a career in theatre or acting, she graduated with a Bachelor of Arts in Anthropology from Victoria University of Wellington in 1975.
In 1976 Campion attended Chelsea Art School in London and travelled throughout Europe. She graduated with a Graduate Diploma in Visual Arts (Painting) from the Sydney College of the Arts at the University of Sydney in 1981. Based on her education at art school, Campion cites surrealist painter Frida Kahlo and sculptor Joseph Beuys as influences on her art. Dissatisfied with the limits of painting as a medium, Campion turned to film and created her first short film, Tissues in 1980. In 1981 she began studying at the Australian Film, Television and Radio School, where she made several more short films, and graduated in 1984.
Her first short film, Peel (1982), won the Short Film Palme d'Or at the 1986 Cannes Film Festival, and other awards followed for the shorts Passionless Moments (1983), A Girl's Own Story (1984) and After Hours (1984). Having left the Australian Film and Television School she directed an episode for ABC's light entertainment series Dancing Daze (1986), which led to her first TV film, Two Friends (1986) produced by Jan Chapman.
Sweetie (1989) was her feature debut, and won international awards. Further recognition followed with An Angel at My Table (1990), a biographical and psychological portrayal of the New Zealand writer Janet Frame. International recognition followed with another Palme d'Or at the 1993 Cannes Film Festival for The Piano, which won the best director award from the Australian Film Institute and an Academy Award for Best Original Screenplay in 1994. At the 66th Academy Awards, she was the second woman ever to be nominated for Best Director.
Campion's work since that time has tended to polarize opinion. The Portrait of a Lady (1996), based on the Henry James novel, featured Nicole Kidman, John Malkovich, Barbara Hershey and Martin Donovan. Holy Smoke! (1999) teamed Campion again with Harvey Keitel, this time with Kate Winslet as the female lead. In the Cut (2003), an erotic thriller based on Susanna Moore's bestseller, provided Meg Ryan an opportunity to depart from her more familiar onscreen persona. Her 2009 film Bright Star, a biographical drama about poet John Keats (played by Ben Whishaw) and his lover Fanny Brawne (Abbie Cornish), was shown at the Cannes Film Festival.
Campion was an executive producer for the 2006 documentary Abduction: The Megumi Yokota Story and was creator, writer and director of the serial Top of the Lake. The mini-series received near universal acclaim with its lead actress Elisabeth Moss winning numerous awards including a Golden Globe Award for Best Actress – Miniseries or Television Film and a Critics' Choice Television Award for Best Actress in a Movie/Miniseries as well as a Primetime Emmy Award for Outstanding Lead Actress in a Miniseries or a Movie nomination. Campion herself was nominated for a Primetime Emmy Award for Outstanding Directing for a Miniseries, Movie or a Dramatic Special.
She was the head of the jury for the Cinéfondation and Short Film sections at the 2013 Cannes Film Festival. and the head of the jury for the main competition section for the 2014 Cannes Film Festival. During his speech when collecting the Prix du Jury for his film Mommy, Canadian filmmaker Xavier Dolan said of Campion's The Piano that "It made me want to write roles for women: beautiful women with soul, will and strength, not victims or objects." Campion responded by rising from her seat to give him a hug.
In 2014 it was announced that Campion was nearing a deal to direct an adaptation of Rachel Kushner's novel The Flamethrowers.
In 2015 Campion confirmed that she would be co-directing and co-writing a second season of Top of the Lake with the action moved to Sydney and Harbour City, Hong Kong with Elisabeth Moss reprising her role as Robin Griffin.
In 1992, she married Colin David Englert, an Australian who worked as a second unit director on The Piano. Their first child, a son named Jasper, was born in 1993 but lived for only 12 days. Their second child, a daughter named Alice Englert, was born in 1994; she is an actress. The couple divorced in 2001.
From the beginning of her career, Campion's work has received high praise from critics all around. In V.W. Wexman's Jane Campion: Interviews, critic David Thomson describes Campion "as one of the best young directors in the world today." Similarly, in Sue Gillett's "More Than Meets The Eye: The Mediation of Affects in Jane Campion's 'Sweetie'," Campion's work is described as "perhaps the fullest and truest way of being faithful to the reality of experience"; by utilizing the "unsayable" and "unseeable," she manages to catalyze audience speculation. Campion's films tend to gravitate around themes of gender politics, such as seduction and female sexual power. This has led some to label Campion's body of work as feminist, however, Rebecca Flint Marx argues, "while not inaccurate, [the feminist label] fails to fully capture the dilemmas of her characters and the depth of her work."
Campion was appointed a Dame Companion of the New Zealand Order of Merit in the 2016 New Year Honours.