Born and educated in Melbourne, Diane graduated with a DipEd (1972) and an MA in literature (1975) from the University of Melbourne, and taught at Box Hill Technical College (1973) and Burwood Teachers' College (tutor, 1977-9). She lived in England for three years and took a Human Relations course at the College of the Richmond Fellowship, London, 1985. She moved to Adelaide in 1986, lecturing in Literary Studies at the Salisbury Campus of the University of SA. She remained in SA for six years, later working at Deakin University (tutor, 1996), and for the Council of Adult Education, Melbourne (1996).
Fahey was Poetry Editor of Voices (National Library, Canberra, 1997). She has received three Writer's Fellowships from the Literature Board of the Australia Council (1987, 1988, 1990), two Writer's Grants from the SA Dept of the Arts and Cultural Heritage (1991, 1992), a Writer's Grant from the Victorian government (1995) and the Felix Meyer Scholarship from the University of Melbourne in 1989.
Fahey has led creative writing courses both in Australia and overseas and has had residencies in Venice (1987), Kangaroo Island (1988), Varuna, NSW (1991) and Hawthornden, Scotland (1993), as well as being Writer in Residence at Ormond College, University of Melbourne (1989) and at the University of Adelaide (1997). In 1997 she received a three-year grant from the Australia Council. Her poems have been read on the ABC, 5UV, 3RRR and 3CR, and a video of her poetry reading was made by the Australian Defence Force Academy, Canberra. She was awarded a PhD in Creative Writing from the University of Western Sydney in 2001 and received an Arts Victoria Grant for 2001.
She says of herself in an article in Kunapipi, 'I write, in the first instance, to sort myself out, to further my discovery of who I am... Secondly, I write as an act of engagement with the human world in which I find myself.' She now lives by the sea in country Victoria. Her interests include ecology, fairytales, Victorian fiction and the Gothic.