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Born in Neptune, New Jersey, Bornstein studied Theater Arts with John Emigh and Jim Barnhill at Brown University (Class of '69). Bornstein joined the Church of Scientology but later became disillusioned and she publicly formally left the movement in 1981. Her antagonism toward Scientology and her public split from the church has had personal consequences. Bornstein's daughter, herself a Scientologist, no longer has any contact with Bornstein per Scientology's policies.

Bornstein never felt comfortable with the belief of the day: that all trans women are "women trapped in men's bodies". Bornstein knew that she was not a man, but the only other option of the day was to be a woman, a reflection of the gender binary, which required people to identify according to only two available genders. Another block in Bornstein's path was the fact that Bornstein was attracted to women. Bornstein had sex reassignment surgery in 1986.

She settled in to the lesbian community in San Francisco, where she wrote art reviews for the G&L paper, The Bay Area Reporter. Over the next few years, Bornstein came to believe not only that she was not a man, but that she was not a woman either. This catapulted Bornstein back to her former love of performance, creating several performance pieces, some of them one-person shows. It was the only way she knew how to communicate the paradox her life had become.

Bornstein also teaches workshops and has published several gender theory books, and a novel. Her most recent book was written to derail teens, freaks, and other outlaws (with whom she feels at home) from committing suicide by any means. "Do whatever it takes to make your life more worth living," she writes, "just don't be mean." As of 2006, Bornstein was writing an autobiography and resides with her partner, Barbara Carrellas, in New York City.

As of 2009, she is working on a book with S. Bear Bergman entitled Gender Outlaws: The Next Generation.