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In 1978, she co-starred with John Travolta in the film adaptation of the Broadway musical, Grease, which became one of the most successful films and movie soundtracks in Hollywood history. It features two major hit duets with co-star John Travolta: "You're the One That I Want"—which is one of the best-selling singles of all time—and "Summer Nights".

She became the second woman (after Linda Ronstadt in 1977) to have two singles – "Hopelessly Devoted to You" and "Summer Nights" – in the Billboard top 5 simultaneously. Her performance earned her a People's Choice Award for Favorite Film Actress. She was nominated for a Golden Globe as Best Actress in a Musical and performed the Oscar-nominated "Hopelessly Devoted to You" at the 1979 Academy Awards.

In 1980, she starred with Gene Kelly and Michael Beck in the musical fantasy film Xanadu. Although it was a critical failure, its soundtrack was certified double platinum and scored five top 20 singles on the Billboard Hot 100. She charted with "Magic", "Suddenly" with Cliff Richard, and the title song "Xanadu" with the Electric Light Orchestra.

"Magic" was Newton-John's biggest pop hit to that point and still ranks as the biggest AC hit of her career. The film has since become a cult classic and the basis for a Broadway show that ran for more than 500 performances beginning in 2007 and was nominated for four Tony Awards including Best Musical.

She helped pioneer the music video industry by recording a video album for Physical, featuring videos of all the album's tracks and three of her older hits. The video album earned her a fourth Grammy and was aired as an ABC prime-time special, Let's Get Physical, becoming a top-10 Nielsen hit.

She teamed up with Travolta again in 1983 for the critically and commercially unsuccessful movie Two of a Kind, redeemed by its platinum soundtrack featuring "Twist of Fate", and a new duet with Travolta, "Take a Chance"Iowa.

In 2002, she was inducted into Australia's ARIA Hall of Fame and, in 2015, she was inducted into the Music Victoria Hall of Fame. In recognition for "her work as an entertainer and philanthropist", she was bestowed Australia's highest honor, the Companion of the Order of Australia, in June 2019.

In 2008, she raised funds to help build the Olivia Newton-John Cancer and Wellness Centre in Melbourne, Australia. She led a three-week, 228 km walk along the Great Wall of China, joined by various celebrities and cancer survivors throughout her trek. The walk symbolised the steps cancer patients must take on their road to recovery.

She was a a long-time activist for environmental and animal rights issues. She battled breast cancer three times and was an advocate for breast cancer research and health awareness. Her business ventures included launching several product lines for Koala Blue and co-owning the Gaia Retreat & Spa in Australia.