Hansen was born in Reykjavík, Iceland, and moved to the United States when he was five. He lived in Maine until age eleven, when his family moved to Texas, where he attended both Austin High School and the University of Texas at Austin. He majored in English and mathematics as an undergraduate, and then went to graduate school in Scandinavian Studies and English.

His first job out of high school was as a computer operator, before he started doing theater work during college. He also was a football player during high school, and for a while a bar bouncer. In 1973, just after finishing graduate school, Hansen heard that The Texas Chain Saw Massacre was being filmed in Austin and decided to try out. He got the part of Leatherface, the masked killer in the movie, and made movie history.

As the movie went on to become a cult classic, Hansen co-starred in the movie Demon Hunter (also known as Demon Lover) and after the experiences he had on that film, he decided not to continue acting. He chose to pursue a writing career. So, in 1975, Hansen after one more year of graduate school, moved back to Maine and started writing. Devoted to his writing, he rejected a part he was offered in the cult classic The Hills Have Eyes.

After working, for a while, writing (and occasionally editing) for magazines and writing books, Hansen got back in to acting in 1987, appearing in the horror spoof Hollywood Chainsaw Hookers, and has appeared in 20 films since. Hansen's new acting career, though, is a side project and he continues to write books. He has written some film scripts too and now writes and directs documentary films.

Gunnar is also an author; his nonfiction travel memoir, Islands at the Edge of Time, A journey to America's Barrier Islands, was published in 1993. In addition, he has taught college as an adjunct instructor.