Born and raised in Virginia, this son of a NASA scientist found his calling after seeing the 1989 David Fincher-directed music video "Janie's Got a Gun" on MTV. With its striking visuals and taut storytelling, that video impressed the teen who had been searching for an outlet for his creativity. Although he initially was accepted to USC on an art scholarship, Kelly petitioned to transfer to the film school and was accepted. While a student, he made two shorts, "The Goodbye Place" and "Visual Matter", the latter of which, a 30-minute exploration of the effects of experiments in teleportation.

Following his graduation from USC, Kelly spent a year working in a post-production house, acquiring skills in 3-D animation. In his spare time, he began working on what he has referred to as his "nostalgia piece," about a highly intelligent teenager diagnosed with borderline schizophrenia who seemingly survives a tragic accident. Eventually the screenplay to "Donnie Darko" was completed and it attracted the attention of actor Jason Schwartzman ("Rushmore") who brought it to the attention of Drew Barrymore and her producing partner Nancy Juvonen. Schwartzman eventually dropped out (and was replaced by Jake Gyllenhaal) while Barrymore went on to accept a supporting role as a progressive high school English teacher. The resulting film was one of the most daring and original independents of 2001.