Hempel was born in Chicago, Illinois. She lives in New York and is Program Coordinator of the graduate Fiction-Writing Program at Brooklyn College.

Additionally, she teaches fiction at The New School, in the Low-Residency MFA Program in Writing at Bennington College, and in the creative writing program at Princeton University. In the fall of 2009, she began teaching Creative Writing at Harvard College as a Briggs-Copeland Lecturer on English. She is also a contributing editor at The Alaska Quarterly Review.

Hempel is a former student of Gordon Lish, in whose workshop she wrote several of her first stories. Lish was so impressed with her work that he helped her publish her first collection, Reasons to Live (1985), which includes "In the Cemetery Where Al Jolson Is Buried", the first story she ever wrote. Originally published in TriQuarterly in 1983, "In the Cemetery Where Al Jolson Is Buried" is one of the most extensively anthologized stories of the last quarter century.

Hempel has produced three other collections: At the Gates of the Animal Kingdom (1990), which includes the story “The Harvest”; Tumble Home (1997); and The Dog of the Marriage (2005). The Collected Stories of Amy Hempel (2006) gathers all the stories from the four earlier books. She co-edited (with Jim Shepard) Unleashed—Poems by Writers’ Dogs (1995), which includes contributions by Edward Albee, John Irving, Denis Johnson, Gordon Lish, Arthur Miller, and many others. She writes articles, essays, and short stories for such publications as Vanity Fair, Interview, Bomb, GQ, ELLE, Harper's Magazine, The Quarterly, and Playboy. Hempel has participated in The Juniper Summer Writing Institute at the University of Massachusetts, Amherst's MFA Program for Poets & Writers.

Generally termed a minimalist writer, along with Raymond Carver and Mary Robison, Hempel is one of a handful of writers who has built a reputation based solely on short fiction.

Hempel is a recipient of the Hobson Award and a Guggenheim Fellowship. In 2006 she was awarded a USA Fellowship grant by United States Artists, an arts advocacy foundation dedicated to the support and promotion of America's top living artists. She won the Ambassador Book Award in 2007 for her Collected Stories, which was also named as one of the The New York Times' Ten Best Books of the year. In 2008 she won the Rea Award for the Short Story. In 2009 she received the PEN/Malamud Award for Short Fiction along with Alistair MacLeod.