The petite blonde Dillon made her feature debut as an eccentric neighbor of Catherine Deneuve in "The April Fools" (1969). After a seven year absence, she returned to films in the dual roles of Woody Guthrie's abandoned wife and as his singing partner in Hal Ashby's "Bound for Glory" (1976). Director Stephen Spielberg cast her in "Close Encounters of the Third Kind" (1977) as a mother coping with the alien abduction of her son. Her sympathetic portrait of a woman obsessed with finding her son earned her an Oscar nod as Best Supporting Actress. Four years later, Dillon earned a second nomination for her pivotal role as an emotionally disturbed woman who provided an alibi for a suspect in Sydney Pollock's "Absence of Malice" (1981). Her warmth suited her well for two mother roles in the whimsical comedies "A Christmas Story" (1983) and "Harry and the Hendersons" (1987). Dillon made an especially strong impression as Savannah Wingo, Nick Nolte's poet sister whose attempted suicide serves as the catalyst in Barbra Streisand's "The Prince of Tides" (1991). In 1995, she was virtually wasted in two high profile ensemble films directed by women: Beeban Kidron's "Too Wong Foo, Thanks For Everything, Julie Newmar" and Jocelyn Moorhouse's "How to Make An American Quilt".

Dillon was formerly married to actor Richard Libertini.