At 42, Tillie attempted to return to writing by taking a class at San Francisco State College. Encouraged by her teachers there, she applied for and received a Wallace Stegner Fellowship in Creative Writing at Stanford University and published her first short story "I Stand Here Ironing" in 1955 at the age of 43. "I Stand Here Ironing" was included in the 1957 edition of Best American Short Stories. Over the next eight years, she produced the four stories that were collected in her distinguished volume Tell Me a Riddle, about which literary critic Julian Moynihan wrote: (Olsen) "explores the deep pain and real promise of fundamental American experience in a style of incomparable verbal richness and beauty. As a great work of literary art, it will be read as long as the American language lasts." The London Tribune stated: "Out of poverty and hardship… (she) reveals with compression, depth and a passionate economy of language a working class America that few writers have known or realized existed." The title story of that collection received the O'Henry Award as the Best American Short Story of 1961.

Tillie Olsen was awarded many distinguished fellowships and awards for her writing, for her contributions to literature and for her activism, including those from: the Guggenheim Foundation, the National Endowment for the Arts, the Radcliff Institute, the British Post Office, the National Endowment for the Humanities, the Stanford University Wallace Stegner Creative Writing Fellowship, The Rea Award for the Short Story, the Bay Area Book Reviewers Fred Cody Lifetime Achievement Award, The Mari Sandoz Award, and the Los Angeles Times "Robert Kirsch" Life Time Achievement Book Award. The American Academy and Institute of American Arts and Letters presented her with an award for distinguished contribution to American Literature, citing her writing as "very nearly constituting a new form of fiction." Olsen was awarded eight honorary doctorates. The plaque she kept on her wall, however, was an honorary high school diploma from Omaha Central High, given at the time of her honoring at the University of Nebraska.  Her work has been anthologized in hundreds of volumes, made into three films and two stage-plays.

Olsen's non-fiction book Silences, based on her many speeches and articles, was published in 1978 and examines the critical link between economic class, color, and gender that have prevented so many writers from writing.

In 1970, Olsen was instrumental in founding the Feminist Press, (now the Feminist Press at the City University of New York). She championed the republication of the 19th century classic Life in the Iron Mills by Rebecca Harding Davis, writing an extended biographical Afterword, which inaugurated the Feminist Press’ reprints of “lost “ American classics by women writers which have become essential texts in American history and literature and women’s studies courses. The Feminist Press issued a new edition of Olsen’s Silences, and in March 2007 began a new series pairing literature by women and men, with Olsen’s Tell Me a Riddle matched with Leo Tolstoy’s The Death of Ivan Illych.

Between 1969 and 1974, Olsen taught at Stanford University, Massachusetts Institute of Technology, the University of Massachusetts, and served as the first woman "visiting writer" at Amherst College. Throughout this era, mindful of her "hatred for all that, ...slows, impairs, silences writers," Olsen continued her activism and efforts to encourage other women and working class writers to their own voice, creativity and expression. Tillie Olsen's papers are archived at Stanford University in their Special Collections at the Green Library.

In November, 2006, author Scott Turow wrote a column for National Public Radio's You Must Read This, in which he said "Tille... had invented a literary tradition of her own… every line is measured, compressed, resonant, stripped bare, so that paragraph after paragraph achieves the shocking brevity and power of the best poems... By now I have read Tell Me a Riddle so often that it is essentially memorized. ... I read with my abiding gratitude to Tillie, who was the first person to tell me what I most wanted to hear; that I had the stuff to be a writer."

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