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Holly Hunter was born in Conyers, Georgia, the youngest of seven children whose father was a part-time sporting goods company representative and part-time farmer with a 250 acre farm. Her parents encouraged in her talent at an early age, and her first acting part was as Helen Keller in a fifth-grade play. In 1976 she went to Pittsburgh to pursue a degree in drama from Carnegie Mellon University. After graduating in 1980, she went to New York City, where she met playwright Beth Henley in a stalled elevator. Hunter went on to get roles in a number of Henley's southern gothic plays, including Crimes of the Heart and The Miss Firecracker Contest. In 1982 the actress went to Los Angeles. She landed her first starring role in the movies in the Coen brothers' Raising Arizona (1987), a part that is said to have been written with her in mind. She gained stardom in 1987 when she played the driven TV news producer Jane Craig in James L. Brooks' Broadcast News (1987). In 1993 she earned an Academy Award and worldwide acclaim with her performance as a mute bride to a New Zealand planter in The Piano (1993).

Hunter's first starring role in films came in 1987's Raising Arizona. That year, she also starred in Broadcast News, for which she earned an Oscar nomination for the Best Actress. In 1993, she won the Best Female Performance Prize at the Cannes Film Festival and the Best Actress Oscar for The Piano and showcased her skill with the piano by playing all the elaborate pieces on the score herself. That year, Hunter was also nominated for Best Supporting Actress for The Firm. In 2000 she played George Clooney's wife "Penny" in Ethan and Joel Coen's movie, O Brother, Where Art Thou? In 2004, she earned another Best Supporting Actress nomination for Thirteen and voiced a star role (Helen Parr/Elastigirl) in the animated film The Incredibles. Hunter has also appeared in several television films and has earned two Emmys. She is currently starring in and producing Saving Grace, a crime series on TNT portraying an Oklahoma City Police Department detective Grace Hanadarko. On May 30, 2008, Holly was awarded a place on the Hollywood Walk of Fame .

For many years, Hunter was in a relationship with actor Arliss Howard. She was married to Polish cinematographer Janusz Kaminski from May 20, 1995 until their divorce on December 21, 2001. Since 2001, she has been in a relationship with American actor Gordon MacDonald with whom she co-starred in Marina Carr's By the Bog of Cats in a 2001 run at the San Jose Repertory Theater, and later in a 2004 West End production of the same play. In January 2006, Hunter's publicist announced that Hunter had given birth to the couple's twins at the age of 47; Entertainment Weekly later reported that the twins were boys.

Holly's cousin is Tim Salmon, former right fielder and designated hitter of the Los Angeles Angels of Anaheim major league baseball team.