An acclaimed playwright and screenwriter, the Mississippi-raised Henley attended Southern Methodist University with the intention of pursuing an acting career. While still an undergraduate, she had her first one-act play "Am I Blue", produced. After a brief sojourn at the University of Illinois, Henley moved to L.A. to pursue an acting career. As roles were scarce, she turned to writing, producing two works, "The Moonwatcher" and "Crimes of the Heart". A friend submitted the latter to the 1979 Great American Play Contest at the Actors Theatre of Louisville where it received first prize and a production. After several regional theater mountings, "Crimes of the Heart" opened off-Broadway to critical praise and was eventually moved to Broadway. In 1981, Henley became the first woman in over twenty years to receive the Pulitzer Prize in Drama. While her subsequent theater pieces ("The Wake of Jamey Foster" 1982; "The Debutante Ball" 1985; "The Lucky Spot" 1986-87; and "Abundance" 1989-90) were not as successful, the playwright has generally received favorable notices. Many critics have compared her writings with those of other eccentric Southern writers like Flannery O'Connor and Eudora Welty.
Henley's first screen credit was for her contributions to the screenplay of "True Stories" (1986), co-written with David Byrne and her companion Stephen Tobolowsky. That same year, her first solo screenplay, "Nobody's Fool" was produced. Directed by Evelyn Purcell, "Nobody's Fool" was a quirky romantic comedy which depicted the growing relationship between an outcast waitress (Roseanna Arquette) and a drifter (Eric Roberts) in a small Southern town. Also in 1986, Bruce Beresford helmed the feature version of "Crimes of the Heart", starring Sissy Spacek, Diane Keaton and Jessica Lange. Henley received an Oscar nod for her screenplay. She went on to adapt another of her plays as "Miss Firecracker" (1989), about a local beauty pageant. Starring in the latter was Holly Hunter who had a long association with the playwright, having appeared in stage productions of "Crimes of the Heart", "The Wake of Jamey Foster", "The Lucky Spot" and "The Miss Firecracker Contest".
Henley's one screen acting role was as a Bible pusher in Jonathan Demme's "Swing Shift" (1984).