Madelyn Lee Payne was born in Peru, Kansas, the daughter of Rolla Charles and Leona (McCurry) Payne. She recalled them as "stern Methodist parents who did not believe in drinking, playing cards or dancing." She moved with her parents to Augusta, Kansas at age of three. Madelyn was one of the best students in her high school graduating class in 1940. Despite her strict upbringing, she liked to go to Wichita, Kansas to see big band concerts.While in Wichita, she met Kansas-born Stanley Armour Dunham from the oil-town of El Dorado, Kansas and the "other side of the railroad tracks." Stanley attended El Dorado High School.

The Dunhams were Baptists. Unlike the Paynes, Stanley Dunham did not come from a white-collar background. At age 8, Stanley discovered his mother's body after she had committed suicide. Following his mother's suicide, his father abandoned the family and Stanley and his brother, Ralph, was sent to live with his maternal grandparents in El Dorado, Kansas. Described as "gregarious, friendly, impetuous, challenging and loud," he was a furniture salesman "who could charm the legs off a couch." Madelyn's parents did not approve of their marriage, which occurred on May 5, 1940.

During World War II, Stanley Dunham enlisted in the Army. Madelyn worked on a Boeing B-29 assembly line in Wichita. Her brother Charlie Payne was part of the 89th Infantry Division, which liberated the Nazi concentration camp at Ohrdruf, a subcamp of Buchenwald, a fact Barack Obama has referred to in speeches.

Madelyn gave birth to a daughter they named Stanley Ann, who was later known as Ann, in Fort Leavenworth on November 29, 1942. With Madelyn and Stanley both working full-time, the family moved to California, Kansas, Texas, and finally settled in Seattle, Washington (on Mercer Island), where Ann graduated from high school. In El Dorado, Kansas, Stanley had managed a furniture store while Madelyn worked in restaurants. In Seattle, Stanley worked in a bigger furniture store (Standard-Grunbaum Furniture) while Madelyn eventually became vice-president of a local bank. Mercer Island was then "a rural, idyllic place," quiet, politically conservative and all white. Madelyn and Stanley attended Sunday services at the East Shore Unitarian Church in nearby Bellevue. While in Washington she attended the University of Washington. She later would also attend classes at the University of California, Berkeley.

Madelyn and Stanley then moved to Hawaii, where he found a better furniture store opportunity. She started working at the Bank of Hawaii in 1960 and was promoted to be one of the first female bank vice presidents in 1970. In 1970s Honolulu, both women and the minority white population were routinely the target of discrimination.

Ann attended the University of Hawaii and while she was there she met Barack Obama, Sr. a graduate student from Kenya. Both Dunhams were upset when their daughter married Obama, particularly after receiving a long, angry letter from the graduate student's father in Kenya who "didn't want the Obama blood sullied by a white woman." The Dunhams adapted, however. Madelyn Dunham was quoted as saying, "I am a little dubious of the things that people from foreign countries tell me."

After the Obama marriage fell apart, the young Barack spent four years with his mother and her second husband in Jakarta, Indonesia. He returned to the United States at age 10 to live with his maternal grandparents in the Makiki district of Honolulu and enrolled in the fifth grade at the Punahou School. The tuition fees for the prestigious preparatory school were paid with the aid of scholarships. Ann would later come back to Hawaii and pursue graduate studies; she eventually earned a Ph.D. in anthropology and went on to be employed on development projects in Indonesia and around the world helping impoverished women obtain microfinance. When she returned to Indonesia in 1977 for her Masters' fieldwork, Obama stayed in the United States with his grandparents. Obama writes in his memoir, Dreams From My Father, "I’d arrived at an unspoken pact with my grandparents: I could live with them and they'd leave me alone so long as I kept my trouble out of sight."

Obama and his half-sister Maya Soetoro-Ng refer to Madelyn Dunham as "Toot" — short for "tutu," the Hawaiian word for grandmother. In his book, Obama described his grandmother as "quiet yet firm", in contrast to Obama's "boisterous" grandfather Stanley. Obama considered his grandmother "a trailblazer of sorts, the first woman vice-president of a local bank." Her colleagues recall her as a "tough boss" who would make you "sink or swim", but who had a "soft spot for those willing to work hard." She retired from the Bank of Hawaii in 1986.

On November 3, 2008 (November 2, Hawaiian Time), the Obama campaign announced that Madelyn Dunham had "died peacefully after a battle with cancer" in Hawaii. "She was the cornerstone of our family, and a woman of extraordinary accomplishment, strength, and humility."

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