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's degree 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 bachelor's degree in painting at the Sydney College of the Arts in Australia in 1979. Based on her education at Chelsea Art School and the Sydney College of the Arts 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.
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 raising from her seat to give him a hug.
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. The couple divorced when their second child, actress Alice Englert, was 7.
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."