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James Albert Varney, Jr. was born in Lexington, Kentucky, to Nancy Louise (Howard) and James Albert Varney, Sr. He became interested in theater as a teenager, winning state titles in drama competitions while a student at Lafayette High School in Lexington, Kentucky. At age 15 he played Ebeneezer Scrooge in a local children's theater production of "A Christmas Carol", and by 17 was performing professionally in nightclubs and coffee houses. He chose Nashville rather than New York or Los Angeles as a place to pursue his acting career and, with advertising executive John R. Cherry III, turned "Ernest P. Worrell" into a cash cow, making commercials for clients ranging from soft drinks to food stores and, eventually, Disney. Even though Ernest's catchphrase "KnowhutImean?" became a national craze almost immediately, Jim worked in TV and film for more than a decade before his famous alter-ego hit the big screen in Ernest Goes to Camp (1987).
Building on the successful performance of the first two Ernest movies, Varney made three more with Disney; five others were released independently, largely for television markets. The series eventually included Ernest Goes to Jail (1990), Ernest Rides Again (1993), Ernest Goes to School (1994) and Ernest in the Army (1998).
Varney's first film in a lead role other than Ernest was the 1993 big-screen version of the comedy TV series Beverly Hillbillies, in which he played Jed Clampett. He also lent his distinctive voice to the character of Slinky Dog in the blockbuster animated features Toy Story (1995) and Toy Story 2 (1999).
In 1998, Varney was diagnosed with lung cancer. He subsequently underwent surgery to remove most of his right lung, followed by radiation treatments. Varney publicly disclosed his battle with cancer in 1999, but continued to work, filming his last project, Daddy and Them (2001), starring and directed by Billy Bob Thornton. He died on February 10, 2000, in Nashville, Tennessee, at the age of 50.
He was buried in Lexington Cemetery in Lexington, Kentucky.