Watts was born in Shoreham, Kent, England, where she lived until the age of eight. Her parents, Peter and Myfanwy Watts had separated when she was four years old, and when she was seven, her father died. Following her father's death, her mother relocated the family to the town of Llangefni (more specifically Llanfawr Farm), on the Isle of Anglesey in North Wales, where they lived with Naomi's grandparents, Hugh and Nikki Roberts. Although her mother occasionally moved the family around Wales and England, usually to follow boyfriends, she always ended up returning to Llangefni. She lived there until she was 14. Then, during a trip to Australia, her mother became convinced that there was "the land of opportunities" and moved the family to Sydney in 1982. Her grandmother, Nikki, was Australian, which made it easier to obtain the documentation necessary, since Naomi and her family were entitled to Australian citizenship.

Her father was a sound engineer with Pink Floyd (his manic laugh kicks off Dark Side of the Moon) and her mother is described by Watts as a hippie "with passive-aggressive tendencies" who used to threaten to send her and her brother to foster care in order to convince her grandparents to take care of the family, since her mother had virtually no money after her father's passing.

In Sydney, she attended several acting schools (and in the very first lesson in the first school, she met Nicole Kidman, with whom she shared a taxi home from class). In 1986 she took a break from acting and went to Japan to work as a model, but the experience was fruitless, and Watts describes it as one of the worst periods of her life, which lasted for about four months. Upon returning to Australia, Watts went to work for a local department store and from there she went to work as assistant fashion editor with an Australian fashion magazine. She only returned to acting when a casual invitation from a colleague to participate in a small play rekindled her passion for the scenic arts and prompted her to quit her job and dedicate herself completely to making it as an actress.

She is a close friend with Nicole Kidman.

Watts' career began in Australian television, as she appeared in commercials and television melodramas as in Home and Away and Brides of Christ. She was featured in a supporting role in the acclaimed 1991 Australian indie film Flirting which starred future Hollywood up-and-comers Nicole Kidman and Thandie Newton. As Watts made the transition from Australia to the United States, she landed a supporting role in the little seen 1995 film Tank Girl, playing the part of "Jet Girl."

Finding quality roles at first proved difficult for Watts in the Hollywood system, as she appeared in the short lived series Sleepwalkers and numerous B-list productions as in films like Children of the Corn. Gradually, Watts garnered supporting roles as in Dangerous Beauty.

However it wasn't until 2001, when Watts caught the attention of critics and audiences as she appeared in David Lynch's highly acclaimed Mulholland Drive. The film, which premiered at the 2001 Cannes Film Festival, won Watts high praise. She won the National Society of Film Critics Award as Best Actress and the National Board of Review award as Breakthrough Performance of the year. Soon after, the quality and importance of Watts' roles improved and quickly shot the actress to the top of the Hollywood A-list. In 2002, she starred in one of the biggest box office hits of that year, the English language remake of the Japanese horror film, The Ring. The following year, she starred in the film Ned Kelly opposite Heath Ledger, Orlando Bloom, and Geoffrey Rush; as well as the Merchant-Ivory film Le Divorce with Kate Hudson. It was her performance opposite Sean Penn and Benicio Del Toro in director Alejandro González Iñárritu's 21 Grams that earned Watts her first Academy Award nomination as Best Actress.

Since then Watts has been one of the most in-demand actresses. She produced and starred in the well received independent picture We Don't Live Here Anymore. She reunited with Sean Penn and Don Cheadle in The Assasination of Richard Nixon, teamed up with Jude Law and Dustin Hoffman in David O'Russell's ensemble I Heart Huckabees, and starred in the sequel to the Ring, The Ring 2. Aside from balancing both independent projects as Ellie Parker, she managed to star in the biggest remake of them all, 2005's King Kong. The role, which was immortalized by Faye Wray in the original, proved to be Watts' most commericial film yet. Directed by Lord of the Rings director Peter Jackson, the film won high praise and has since grossed more than $400 million dollars worldwide.

Watts recently shot the film The Painted Veil with Edward Norton & Liev Schreiber. The film is due out in the fall of 2006.

In May 2006, Watts was named a special representative to the U.N. program for HIV/AIDS.

Watts dated actor Heath Ledger for several years. As of 2005, Watts has been dating actor Liev Schreiber. She is a close friend of fellow Australian actress Nicole Kidman, they met when they were teenagers, and Benicio Del Toro, with whom she co-starred in 21 Grams. After filming her most recent movie, The Painted Veil, she has converted to Buddhism, claiming “I have some belief but I am not a strict Buddhist or anything yet. There was a lot of excitement and energy there.” [1]

Watts divides her time between homes in Sydney, Los Angeles, and New York City.