She has recently had several notable roles, including that of Elle Driver in Kill Bill, after a hiatus from major roles during the 1990s.

Hannah was born in Chicago, Illinois, to Donald and Susan Hannah. Her parents divorced shortly after her birth and her mother remarried Jerrold Wexler, a businessman and brother of Haskell Wexler, a noted cinematographer. Hannah, a vegetarian since age eleven, grew up with siblings Don and Page Hannah, who also became actors, as well as half sister Tanya Wexler, now a film director. Due to a childhood accident, Hannah is missing a part of her left index finger.

Daryl Hannah became interested in movies at an old age, due to insomnia. She was very shy and was diagnosed as 'borderline autistic'. Hannah attended the Francis W. Parker School (where she played on the boys' soccer team) and the University of Southern California, majoring in theatre.

Hannah made her film debut in 1978, making a brief appearance in Brian De Palma's horror film The Fury. She subsequently appeared in several early 1980s films, the most notable role of which is probably as the replicant, Pris, in Ridley Scott's 1982 film, Blade Runner. Hannah was cast as a mermaid in Ron Howard's 1984 fantasy, Splash, which was a major financial success, grossing over $62 million and establishing Hannah as a notable film actress.

Hannah's roles in the remainder of the 1980s ranged from successful major roles in Steel Magnolias and the Academy Award-winning Wall Street, to the disappointing, including the 1986 film version of The Clan of the Cave Bear, which received mostly negative reviews and performed poorly at the box office. Hannah also played the title role in Fred Schepisi's 1987 film Roxanne, a modern retelling of Edmond Rostand's play Cyrano de Bergerac, a performance which was described as "sweet" and "gentle" by film critic Roger Ebert.

In the 1990s, Hannah's roles included starring as a giantess in the television movie Attack of the 50 Foot Woman (1993), which she also co-produced. She also appeared as the daughter of Jack Lemmon's character in both of the Grumpy Old Men films. In 1995, Hannah was chosen by Empire magazine as #96 of the "100 Sexiest Stars in film history". That same year, Hannah anticipated (by a decade) her Kill Bill role when she appeared as homicidal sociopath Leann Netherwood in The Tie That Binds.

Of Hannah's most recent roles, the best-known may be that of the one-eyed assassin Elle Driver in Kill Bill Volume 1 and Kill Bill Volume 2, directed by Quentin Tarantino. Her performance in these films, as well as her appearances in other recent films, including Casa de los Babys and Silver City, have been described by some critics as a cinematic comeback for Hannah, who had not appeared in many mainstream films in the late 1990s and early 2000s. In late 2004, Hannah was a featured model in Playboy magazine, participating in a revealing set of photographs.

Hannah and actress Hilary Shepard co-created a boardgame called "Liebrary". Hannah previewed the game on The Ellen DeGeneres Show in December 2005.

Hannah, who now lives in Colorado, is a keen environmentalist and uses solar power. She also drives a car that runs on biodiesel.

Hannah has never married, but she was romantically involved with John F. Kennedy, Jr, singers Jackson Browne and Robbie Williams, and actor Val Kilmer. She is the sister-in-law of well-known music producer Lou Adler, who is married to Hannah's sister Page.

On June 13, 2006, Hannah was arrested for her involvement with a group of farmers and their supporters, confronting authorities trying to evict them from an urban garden near downtown Los Angeles. She tied herself to a Walnut Tree at the South Central Farm in south-central Los Angeles in order to protest the farm's imminent sale. The farm had been established in the wake of the 1992 LA riots to allow people in the city to grow food for themselves. However, the farm's owner sought to sell the property. She was interviewed by a cell phone and she said that she and the others are doing the "morally right thing" shortly before she was arrested, along with seventeen other protesters.