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Paula Gunn Allen was the daughter of a Lebanese-American father and a Pueblo-Sioux-Scots mother. She was raised near Laguna and Acoma Pueblo reservations and was influenced by the matriarchal Pueblo culture. She received both her BA in English and her MFA in creative writing from the University of Oregon, and a doctorate in American studies, with a concentration in Native American literature, from the University of New Mexico.

In 1978 she received a National Endowment for the Arts fellowship and in 1980, a fellowship to study Indian women's writings. Her 1983 novel, The Woman Who Owned the Shadows, reflected her own upbringing. Her collections of poetry include Coyote's Daylight Trip (1978), Shadow Country (1982), and Life is a Fatal Disease (1996). Studies in American Indian Literature: Critical Essays and Course Designs (1983) is considered a landmark text in Native American literary criticism. The Sacred Hoop: Recovering the Feminine in American Indian Traditions (1986) explores the importance of women in traditional Indian culture. Along with Patricia Clark Smith, Allen wrote As Long as the Rivers Flow: The Stories of Nine Native Americans (1996) for younger readers. Her latest work is Pocahontas: Medicine Woman, Spy, Entrepreneur, Diplomat (2003), a new look at Pocahontas through the eyes of a Native American woman.

She has taught at Fort Lewis College, San Diego State University, San Francisco State University, the University of New Mexico, and retired in 1999 from the University of California at Los Angeles.

She is also listed in 100 Native Americans Who Shaped American History.