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Tamahori grew up in Tawa, a northern suburb of Wellington, North Island, New Zealand. Educated at Tawa School and Tawa College, he began his career as a commercial artist and photographer. He moved into the film industry in the late 1970s, initially getting in the door by working for nothing, then working as a boom operator for Television New Zealand, and on the feature films: Skin Deep, Goodbye Pork Pie, and Bad Blood.
In the early 1980s Pork Pie director Geoff Murphy promoted Tamahori to become an assistant director on Utu, and he subsequently worked as first assistant director on The Silent One, Murphy's The Quiet Earth, Came a Hot Friday and Merry Christmas, Mr Lawrence. In 1986 Tamahori co-founded production company Flying Fish, which specialised in making commercials. Tamahori made his name with a series of high-profile television commercials, including one awarded 'Commercial of the Decade'.
Tamahori had directed a number of shorter dramas for television before he made his feature film debut in 1994 with Once Were Warriors, a gritty depiction of a violent Māori family. The film had had problems finding funding, but it went on to break box office records in New Zealand. Overseas it sold to many countries and won rave reviews from Time magazine, Village Voice, and The Melbourne Age, with Time and The Age naming it one of the ten best films of the year.
Tamahori moved to Hollywood and directed the period thriller Mulholland Falls (1996), although this was not received well critically or commercially. This was followed by the successful wilderness film The Edge (1997), which starred Anthony Hopkins and Die Another Day (2002), the twentieth and most successful James Bond film made up until that point. He also directed an episode of The Sopranos.
His other films include thriller Along Came a Spider and drama The Devil's Double starring Dominic Cooper, a dramatisation of Latif Yahia's claims that he was forced to become body double to Uday Hussein, son of Saddam.
In 2015 Tamahori directed Mahana, his first feature made in New Zealand since Once Were Warriors. The rural-set drama was based on the novel Bulibasha by Witi Ihimaera, and starred Warriors actor Temuera Morrison. The movie was released in New Zealand in March 2016, after debuting at the Berlin Film Festival.
On 8 January 2006, Tamahori, dressed as a woman, was arrested in Los Angeles for allegedly offering an undercover police officer oral sex. He was convicted only of criminal trespass, having pleaded no contest in exchange for other charges being dropped.