The Danish moviemaker stunned reporters during a Cannes press conference last month (May11) when he rambled on about his German heritage and declared he could "understand" Hitler - as an awkward Dunst sat next to him.
Von Trier has since apologised for his remarks, but it was not enough for festival organisers; they have banned the filmmaker from the French movie event.
Dunst, who was named the Best Actress at Cannes for her role in the film, has now offered her support to the director, insisting the Dane's words "came out wrong".
She says, "He says dumb stuff sometimes but not anything I had ever been offended by. It just came out wrong, that's not Lars at all.
"He was trying to make people laugh by telling the story of his life but it was not the right audience for it. He doesn't speak English that often, he's been in Denmark for a long time. It just didn't translate well."
Dunst, who shifted awkwardly in her seat at the press conference as her director made his remarks, admits she was annoyed with him at the time: "I was upset, shocked and angry but, at the end of the day, he is still my friend."
The Danish moviemaker hit headlines last week ends (22May11) for making controversial comments about Nazi leader Adolf Hitler at a Cannes press conference to promote the new drama.
Festival bosses subsequently banished Von Trier and the director admitted his remarks were "completely and absolutely stupid," but the scandal failed to stem the success of Melancholia.
Dunst landed the Best Actress award for her role in the film and when she took to the stage to pick up the prize on Sunday (22May11), she praised festival bosses for keeping the movie in the contest.
She said, "Wow, what a week it's been... This is an honour that's once in a lifetime. Thank you to the Cannes Film Festival for allowing the film to still be in (the) competition... I want to thank Lars for giving me the opportunity to be so brave in this film. It's such a special night for me."
Von Trier stunned reporters at an interview session for his new film Melancholia on Wednesday (18May11) when he rambled on about his German heritage and declared he could "understand" Hitler.
Organisers subsequently banned him from the French movie event, and Trier admits he was "completely and absolutely stupid" to make the comments.
He tells BBC News, "I am sorry for my own sake and I am sorry if I have hurt anyone, that was not my intention at all. It was completely and absolutely stupid.
"I blame myself, because you can say words in press conferences which can be taken out of context. But I was carried away. I thought I was sitting with my friends talking, and then suddenly I was talking to the world."
But von Trier insists his remarks were "lost in translation" by the media.
He adds, "I have thought about it, and when I said, 'I sympathise with Hitler' I would have used 20 words in Danish to explain that I am interested in the man himself, and then hopefully people would have understood.
"I understand these issues are a no-go area. I do like to provoke, but mostly I do it for a reason. I am not a Nazi, or an anti-Semite, and I had nothing to achieve... I am not trying to excuse myself, it was extremely stupid of me."
The director also hopes his remorse over the remarks will prompt Cannes bosses to one day overturn his festival ban, adding: "It's pretty much up to the festival. I accept it. My own crazy family would actually be very proud that I was 'persona non grata', not just in Cannes, but anywhere in the world."
Von Trier's apocalyptic drama Melancholia remains in competition for the festival's top prize, the Palme d'Or, which will be handed out on Sunday (22May11). The director will not be allowed to collect the prestigious honour if he wins.
Von Trier hit headlines this week (beg16May11) after expressing sympathy for Hitler while discussing his German heritage at a press conference for his new movie Melancholia at the Cannes Film Festival in France. Festival directors subsequently banned von Trier from the event.
Now fellow Dane Refn has addressed the controversy, admitting the comments reflect a problem with attitudes in their native country.
At a press conference for his movie Drive, Refn told reporters, "I think that what Lars said was very unacceptable, and I don't want to comment on his movie (Melancholia). I haven't seen it.
"I think it just shows that in Denmark we have a very small mentality and we sometimes forget that there are other people around us.
"I was very repulsed by what he said, and for my family's sake as well, and how it affects them and everybody else. I don't really want to get into it. Whatever he wants to do, it's his life. The man's 60 years old."
Organisers of the annual French event declared von Trier a "persona non grata" on Thursday (19May11), a day after he shocked reporters and critics at a press conference for his new release Melancholia by rambling on about his German ancestry and admitting he could "understand" Nazi leader Adolf Hitler.
He subsequently apologised for his remarks to Cannes officials, who explained that he felt he had "allowed himself to be egged on by a provocation" during the screening.
Von Trier's offer to make amends was not enough to smooth over the scandal and Cannes organisers decided to forbid him from attending any further festivities.
But the moviemaker is "fine" and is taking the ban in his stride, according to his producer Meta Foldager.
Foldager tells the AFP, "Lars accepts whatever the festival directors want to do to punish him. He fully accepts that... it's up to the festival to decide what is good for the festival."
Von Trier's disaster drama Melancholia, which was warmly received by critics at Wednesday's (18May11) premiere, remains in the running for Cannes' top accolade, the Palme d'Or.
However, the director's controversial remarks have already had a negative impact on the movie - executives at Argentina's Distribution Company SA, which owns the rights to the film's release in parts of South America, have already cut ties with von Trier and will no longer screen the drama in cinemas.
The moviemaker shocked reporters and critics at a press conference for his new release Melancholia on Wednesday (18May11) when he went off on a tangent about his German ancestry and how he can "understand" and "sympathise with" Hitler.
He went on to claim he's "not against Jews" but then launched a rant about Israel, branding it a "pain in the a**".
Von Trier - whose new film premiered to great acclaim from journalists - was forced to apologise for his remarks to Cannes officials, who explained that he felt he had "allowed himself to be egged on by a provocation" during the screening.
But organisers at the event have decided the comments were too controversial for comfort, and have declared Von Trier "persona non grata" at the festival.
A statement from a Cannes spokesperson says, "The festival's board of directors... profoundly regrets that this forum has been used by Lars Von Trier to express comments that are unacceptable, intolerable, and contrary to the ideals of humanity and generosity that preside over the very existence of the festival.
"The board of directors firmly condemns these comments and declares Lars Von Trier persona non grata at the Festival de Cannes, with effect immediately."
Von Trier was the toast of Cannes back in 2000, when his Dancer In The Dark movie won the festival's revered Palme d'Or award for Best Picture.
Von Trier stunned reporters at a press conference for his new film Melancholia on Wednesday (18May11) when he launched into a rant about his German heritage and declared he could "understand" Hitler.
Festival officials subsequently condemned his remarks and admitted they were "disturbed" by the Danish filmmaker's outburst, prompting von Trier to backtrack over his comments and personally apologise for causing a stir.
According to festival organisers in France, von Trier explained he had "allowed himself to be egged on by a provocation" during the press conference.
The shamed couturier hit headlines in February (11) after he was accused of making racist insults, while a video which purportedly showed him praising Nazi dictator Adolf Hitler later emerged on the internet.
The scandal cost him his job as head designer at Christian Dior, while he was also fired from the board of his own label.
Police have been investigating the allegations against Galliano and authorities in France have now announced he will stand trial in the country's capital in June (11).
He faces up to six months in prison and a $31,000 (£19,375) fine if he is convicted of making "public insults based on origin, religious affiliation, race or ethnicity", according to the Associated Press.
Galliano was sacked as head designer for Christian Dior after he was arrested by cops in Paris, France in February (11) over allegations he racially abused a couple at a bar and praised Adolf Hitler.
On Wednesday (04May11), it emerged he had sacked his attorney Stephane Zerbib and later made a complaint of "aggravated breach of trust" - but Zerbib has now hit back with a counter-suit for defamation, according to AFP.
Officials in Paris are due to announce on 12 May (11) when Galliano will go on trial over the allegations of making racist and anti-Semitic remarks.
The couturier was arrested by cops in Paris, France in February (11) over allegations he racially abused a couple at a bar. He was subsequently fired as head designer for Christian Dior after footage leaked online in which he could allegedly be heard praising Nazi leader Adolf Hitler.
He is due in court to be given a date for his trial on 12 May (11), but it has emerged the troubled style guru has sacked his attorney Stephane Zerbib.
According to a representative for Galliano, Zerbib was dismissed over alleged irregularities in his company's handling of Galliano's financial affairs.
The statement says, "Mr. Zerbib was dismissed as Galliano's lawyer some weeks ago following the discovery of apparent irregularities in respect of his firm's administration of Galliano's financial affairs over a number of years."