Campion was born in Wellington, New Zealand, the second daughter of Edith Campion (née Beverley Georgette Hannah), an actress, writer, and heiress; and Richard M. Campion, a teacher, and theatre and opera director. Her maternal great-grandfather was Robert Hannah, a well-known shoe manufacturer for whom Antrim House was built. Her father came from a family engaged in the Exclusive Brethren Christian evangelical movement. Along with Jane’s sister Anna, a year and a half her senior, and brother, Michael, seven years her junior, Campion grew up in the world of New Zealand theatre. Their parents founded the New Zealand Players. Jane initially rejected the idea of a career in the dramatic arts, and graduated instead with a Bachelor of Arts in Anthropology from Victoria University of Wellington in 1975.

In 1976, she enrolled in the Chelsea Art School in London, and traveled throughout Europe. She earned a graduate diploma in visual arts (painting) from the Sydney College of the Arts at the University of Sydney in 1981. Campion’s later film work was shaped in part by her art school education; she has, even in her mature career, cited painter Frida Kahlo and sculptor Joseph Beuys as influences.

Campion’s dissatisfaction with the limitations of painting led her to filmmaking and the creation of her first short, 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.

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.

Her feature debut, Sweetie (1989), won international awards. Further recognition came with An Angel at My Table (1990), a biopic about the life of New Zealand writer Janet Frame, from a screenplay written by Laura Jones. Widespread recognition followed with The Piano (1993), which won the Palme d’Or at the 1993 Cannes Film Festival, Best Director from the Australian Film Institute, and an Academy Award for Best Original Screenplay in 1994. At the 66th Academy Awards, Campion was the second woman ever to be nominated for Best Director.

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 co-direct and co-write a second season of Top of the Lake with the story moved to Sydney and Harbour City, Hong Kong, and with Elisabeth Moss reprising her role as Robin Griffin. The sequel series titled Top of the Lake: China Girl was released in 2017. Shot and set in Sydney, Top of the Lake: China Girl features Alice Englert, Campion’s daughter, in a lead role as Robin’s biological daughter. The series also features Ewen Leslie, David Dencik and Nicole Kidman.

Campion was appointed a Dame Companion of the New Zealand Order of Merit in the 2016 New Year Honours, for services to film.