Paulson was born December 17, 1974, in Tampa, Florida. Although born in Florida, Paulson spent a considerable amount of time growing up in New York City, especially Brooklyn, where she went to elementary school for a few years. She also spent some of her childhood in Maine.

It is said that in 2005, Paulson was indirectly outed by her girlfriend Cherry Jones during the 59th Tony Awards, when Jones thanked her by the name "Laura Wingfield" during her acceptance speech. Paulson at the time was playing Laura Wingfield in The Glass Menagerie. However with Ms. Paulson in attendance with Ms. Jones at the ceremony and citing that the pair kissed right after Jones won. The fact that Jones named Paulson even only in character is a moot point.

In 2007, Paulson and Jones declared their love for each other in an interview with VelvetPark at Women's Event 10 for the LGBT Center of NYC.