Her first novel, The Skinny Louie Book won the 1993 New Zealand Book Award for fiction. Since then, other novels have been shortlisted for the Awards with four also nominated for the International Dublin IMPAC Award. Farrell's short fiction has appeared in the company of Alice Munro and Hanif Kureishi in two volumes of Heinemann’s Best Short Stories (ed. Gordon and Hughes), while her poems feature in major anthologies including The Oxford Book of New Zealand Poetry and Bloodaxe’s best-selling Being Alive. Her play Chook Chook is one of Playmarket New Zealand’s most frequently requested scripts.

She has held residencies in France (1995 Katherine Mansfield Fellowship to Menton) and Ireland (2006 Rathcoola Residency), and 2011 was the Robert Burns Fellow at the University of Otago. In 2007 she received the Prime Minister’s Award for Fiction and was appointed an Officer of the New Zealand Order of Merit for 'services to literature' in the Queen's Birthday and Diamond Jubilee Honours List 2012.

In 2013, Fiona received Creative New Zealand's premier award, the Michael King Fellowship, to write twin volumes, one fiction, one non-fiction, prompted by the Christchurch earthquakes and the reconstruction of the city. The Villa at the Edge of the Empire, was shortlisted for the non-fiction section in the 2016 Ockham NZ Book Awards while its fictional twin, Decline and Fall on Savage Street was published to critical acclaim in 2017 and received that year's NZSA Heritage Book Award for fiction.