The 67-year-old filmmaker won the Academy Award on Sunday night for the unconventional Western starring Benedict Cumberbatch that was shot in her native New Zealand.
"I love directing because it's a deep dive into story, yet the task of manifesting a world can be overwhelming," Campion said in her acceptance speech. "But the sweet thing is, I'm not alone. On 'The Power of the Dog' I worked with actors I'm moved to call my friends."
It's her first best director Oscar. She won a best original screenplay Oscar in 1994 for her film "The Piano," which also earned her a directing nomination.
Campion, the first women ever nominated twice for best director, beat out fellow nominees Paul Thomas Anderson, Kenneth Branagh, Ryusuke Hamaguchi and Steven Spielberg.
And, Ari Wegner, the film's cinematographer, was only the second woman to have been nominated in that category. She lost that award to Greig Fraser for "Dune."
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"The Power of the Dog" was also a contender for best actor (Benedict Cumberbatch), best supporting actor (Jesse Plemons and Kodi Smit-McPhee), best supporting actress (Kirsten Dunst), adapted screenplay, production design, editing, sound and score.
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It's cast battled the extreme conditions of the New Zealand landscape to transport audiences to a desolate ranch in 1920s Montana and create an unforgettable piece about human fragility.
"It would have been hard to find 1925 Montana in Montana," Campion laughed. "There's parts of new Zealand that really are so empty ... beautiful, forgotten landscapes."
The story is based on Thomas Savage's 1967 novel about wealthy rancher brothers whose thin bond is strained further when one (Plemons) marries a widow (Dunst) with an adolescent son (Smit-McPhee).
At the at the 78th Venice International Film Festival, Campion said she found herself immersed in "The Power of the Dog" and profoundly impacted by the world Savage had created and the characters he'd drawn.
"As a creative person I don't really calculate. I read this book and I just thought this is an amazing piece of literature," Campion said. "Scenes and themes from the book kept coming back to me and I couldn't forget it. I realized it was a really deep piece."
The Associated Press contributed to this report.