Olsen was born to Russian Jewish immigrants in Wahoo, Nebraska and moved to Omaha while a young child. There she attended Lake School in the Near North Side through the eighth grade, living among the city's Jewish community. At age 15, she dropped out of Omaha High School to enter the work force. Over the years Olsen worked as a waitress, domestic worker, and meat trimmer. She was also a union organizer and political activist in the Socialist community. In the 1930s she joined the American Communist party. She was briefly jailed in 1934 while organizing a packing house workers' union (the charge was "making loud and unusual noise"), an experience she wrote about in The Nation and The Partisan Review. She later moved to San Francisco, California which was her home until her 85th year when she moved to Berkeley, California, to a cottage behind her youngest daughter's home.

She attempted to introduce the challenges of her own life and contemporary political circumstances into a novel which she began in the 1930s, when she was only 19. Although only an excerpt of the first chapter was published in The Partisan Review in 1934, it led to a contract for her with Random House. Olsen abandoned the book, however, due to work, childrearing, and household responsibilities. Decades later in 1974, her unfinished novel was published as From the Thirties.

Olsen first published a book in 1961, Tell Me a Riddle, a collection of four short stories, most linked by the characters in one family. Three of the stories were from the point of view of mothers. "I Stand Here Ironing" is the first and shortest story in the collection, about a woman who is estranged from her daughter. "O Yes" is the story of a white woman whose young daughter's friendship with a black girl is becoming fragile, to her mother's concern. The title story, the longest in the collection, is the story of the decline of an elderly immigrant woman, the matriarch of an assimilated American family whom she has difficulty understanding. The fourth story, "Hey Sailor, What Ship?", is told by an aging sailor whose friendship with a San Francisco family (relatives of the main character in "Tell Me a Riddle") is becoming increasingly strained (in later editions of the book, "Hey Sailor, What Ship?" appears as the second story in the collection). All but the first story were connected by featuring different members of the same family. Tell Me a Riddle has become a staple of college and university literature curricula in the United States. Tell Me a Riddle was awarded the O. Henry Prize in 1961 for best American short story.

Olsen's non-fiction volume, entitled Silences, was an analysis of authors' silent periods in literature, including writer's blocks, unpublished work, and the problems that working-class writers, and women in particular, have in finding the time to concentrate on their art. One of her observations was that prior to the late 20th century, all the great women writers in Western literature either had no children or had full-time housekeepers to raise the children. The second part of the book was a study of the work of little-known writer Rebecca Harding Davis. Olsen researched and wrote the book in the San Francisco Public Library.

Though she published little, Olsen was influential for her treatment of the lives of women and the poor. She drew attention to why women have been less likely to be published authors (and why they receive less attention than male authors when they do publish). Her work received recognition in the years of much feminist political and social activity. It contributed to new possibilities for women writers. Olsen's influence on American feminist fiction has caused some critics to be frustrated at simplistic feminist interpretations of her work. In particular, several critics have pointed to Olsen's Communist past as contributing to her thought.

Reviewing Olsen's life in The New York Times Book Review, Margaret Atwood attributed Olsen’s relatively small output to her full life as a wife and mother, a “grueling obstacle course” experienced by many writers. Her book Silences “ begins with an account, first drafted in 1962, of her own long, circumstantially enforced silence,” Atwood wrote. “She did not write for a very simple reason: A day has 24 hours. For 20 years she had no time, no energy and none of the money that would have bought both.”

Once her books were published, Olsen became a teacher and writer-in-residence at numerous colleges, such as Amherst College, Stanford University, MIT, and Kenyon College. She was the recipient of nine honorary degrees, National Endowment for the Arts fellowships, and a Guggenheim Fellowship.

Also among the honors bestowed upon Olsen was the Rea Award for the Short Story, in 1994, for a lifetime of outstanding achievement in the field of short story writing.

Olsen died on January 1, 2007, in Oakland, California.

• Tillie Olsen Papers, 1930-1990(call number M0667; ca. 62 linear ft.) are housed in the Department of Special Collections and University Archives at Stanford University Libraries

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