Lau was born in Suzhou, China, in 1965. She moved to Hong Kong at the age of fifteen, and joined TVB's acting classes.
Lau made her on-screen debut in The Duke of Mount Deer (1984). She skyrocketed to fame following her role as a wealthy heiress in one of Hong Kong's most-watched ever series, Looking Back In Anger (1989).
Lau then expanded to films. She was nominated at the Hong Kong Film Award for Best Actress for her role in Her Beautiful Life Lies (1989). She received acclaim for her role in Days of Being Wild (1991), one of her many collaborations with film Director Wong Kar-wai. Despite being embroiled in tabloid scandals, Lau's impressive turn as vivacious cabaret Dancer in the film put the focus back onto her talent. She continued to showcase her versatility with impressive performances in martial arts epic Saviour of the Soul (1991), biopic Center Stage (1991), cross-dressing comedy He's a Woman, She's a Man (1994) and offbeat romance Gigolo and Whore (1994). Following parts in the wuxia classic Ashes of Time (1994) and James Bond pastiche Forbidden City Cop (1997), Lau once again attracted the attention of various awards juries with her measured portrayals of bisexual silk factory owner Wan in Intimates (1997) and a prostitute in 19th Century epic Flowers of Shanghai (1998).
In 1990, during the filming of Days of Being Wild, Lau was abducted for several hours, and topless photos of her were taken. At the time, local papers, through Reuters news agency, reported that Lau was kidnapped, though a police report was not filed. It was believed that the man behind the kidnapping is Albert Yeung, a successful businessman with whom Lau was having a financial dispute. Leung has said that Lau never wanted to talk about what happened in those missing hours with anyone, including him.
The nude photos revealed the Actress in distress. Massive protests and petitions were held by fellow Hong Kong entertainers, and media ethics by Hong Kong tabloids and gossip magazines were questioned. The magazine was shut down in November 2002, only to be resumed in late 2003. Mong, the publisher of the photo who is 52 years old as of 2009, received a 5-month jail sentence after pleading guilty in December 2008 to publishing obscene photos. Mong now lives in Beijing.
Lau revealed in 2008 that she was abducted by four men working for a triad boss, as "punishment" for having refused a film offer. She said that she had not been taken advantage of during her two-hour ordeal.