Hou Hsiao-hsien was born in 1947 in Meixian, Guangdong, came to Taiwan with his family the following year, and grew up in Fengshan, Kaohsiung. After graduating from the film and drama program of the National Taiwan Academy of Arts he worked as a continuity clerk, assistant director and screenwriter, and made his first feature, Cute Girl, in 1980.

In 1983 he directed a segment of The Sandwich Man and made The Boys from Fengkuei; in 1985 came A Time to Live, A Time to Die. Long takes, a fixed camera, no close-ups, many of the actors non-professionals. His films and Edward Yang's from these years came to be called Taiwan New Cinema.

In 1989, two years after martial law ended, A City of Sadness won the Golden Lion at Venice — the first feature film to deal directly with the February 28 Incident. Tony Leung plays Lin Wen-ching, a deaf-mute photographer, partly because Leung could not speak Taiwanese. A protagonist who cannot speak was later read by many as a portrait of the era.

He went on to make The Puppetmaster (Jury Prize at Cannes, 1993) and Flowers of Shanghai, and in 2015 won best director at Cannes for The Assassin. In October 2023 his family announced that he had Alzheimer's disease and would make no more films.