The film begins in the present and works backward in time to show how Louise and Kelly, once inseparable best friends, grew apart over the course of a year.

Louise is a studious high school student and has a typical love-hate relationship with her divorced mother.

Kelly, who has bleached hair and identifies with the punk style, lives with friends at the beach and experiments with drugs and casual relationships.

[4] Writing of the 1996 US theatrical release, critic Alison Macor of The Austin Chronicle wrote Two Friends is “a spare film with complex and subtly developed relationships…[and] features nuanced performances that suggest the more developed characterizations that resound so effectively in Campion's acclaimed later films Angel at My Table and The Piano.”[5] In a retrospective essay for Senses of Cinema, Gwendolyn Audrey Foster wrote, “What makes the film so remarkable is the depth of feeling that inhabits the work.

Campion doesn’t miss the smallest detail, from telephone calls that go on too long; to bullying by students at school; to other, minor characters whose fates we will ever know; parents who have no idea who their child really is.”[6] The film won three 1987 AACTA Awards including "Best Telefeature" category for producer Jan Chapman, "Best Achievement in direction in a telefeature" for Jane Campion, and "Best Screenplay in a Telefeature" for Helen Garner.