The 43-year-old star is up for the Best Actress Oscar at the upcoming ceremony for her performance in `Rabbit Hole` and she admits she burst into tears of joy when she was given the happy news.
However, Nicole - who is married to country musician Keith Urban - had to explain her emotional state to her two-year-old daughter Sunday because she was confused by her mother`s reaction.
Speaking at the Santa Barbara International Film Festival at the weekend, she said: "Poor Sunday. They said my name, and Keith was like, `Yeah!` and jumping around the kitchen. And Sunday is like, `What`s happening? Why are you crying?` Because I was crying.
"She said, `Why are we sad?` I said, `No. We`re not sad, Sunday. We`re happy.` So, that would be my memory of this nomination - my daughter and my husband jumping around the kitchen."
The actress admits life couldn`t be any better at the moment following the arrival of her and Keith`s second daughter Faith Margaret - who was born via a gestational carrier in December - and her Academy Award nomination.
The screen beauty - who previously won the Best Actress Oscar in 2002 for her role in `The Hours` - told People: "I think I`m just at a place in my life where I`m in my 40s and realise I`ve been very fortunate. I`m very grateful, because I`ve certainly lived through my fair share of pain and loss. So now, to be where I`m waking up in the morning going, `Thank you, God,` is a very beautiful place to be."
Nicole was presented with the Cinema Vanguard Award at the Santa Barbara International Film Festival in recognition of her achievements in both film and theatre.