Before she became a filmmaker, Nair was originally interested in acting, and at one point she performed plays written by Badal Sarkar, a Bengali performer. While she studied at Harvard University, Nair became involved in the theater program and won a Boylston Prize for her performance of Jocasta’s speech from Seneca’s Oedipus.
At the start of her film-making career, Nair primarily made documentaries in which she explored Indian cultural tradition.
In 1983 with her friend, Sooni Taraporevala, Nair co-wrote Salaam Bombay! . Using her documentary film-making and acting experience, Nair sought out for real "street children" to more authentically portray the lives of children who survive in the streets and are deprived of a real childhood. Though the film did not do well in the box office, it won 23 international awards, including the Camera D’or and Prix du Public at the Cannes Film Festival in 1988. Salaam Bombay! was nominated at the Academy Awards for Best Foreign Language Film in 1989.
Nair then directed the Golden Globe winning Hysterical Blindness (2002). After making William Makepeace Thackeray’s epic Vanity Fair (2004), she directed a film based on Jhumpa Lahiri’s best-selling novel The Namesake (2006). This was followed by the Amelia Earhart biopic Amelia (2009), starring Hilary Swank and Richard Gere. In 2012 Nair directed The Reluctant Fundamentalist, a thriller based on the best-selling novel by Mohsin Hamid. It opened the 2012 Venice Film Festival to critical acclaim and was released worldwide in early 2013. Nair's 2016 Queen of Katwe, a Walt Disney Pictures production, starred Lupita Nyong'o and David Oyelowo and was based on the story of Ugandan chess prodigy Phiona Mutesi.
She was awarded the India Abroad Person of the Year-2007. In 2012 she was awarded India's third highest civilian award the Padma Bhushan by President of India, Pratibha Patil.