Highsmith was born Mary Patricia Plangman in Fort Worth, Texas. She was the only child of artists Jay Bernard Plangman (1889–1975), who was of German descent, and Mary Plangman (née Coates; September 13, 1895 – March 12, 1991). The couple divorced ten days before their daughter's birth.
In 1927, Highsmith, her mother and her adoptive stepfather, artist Stanley Highsmith, whom her mother had married in 1924, moved to New York City. When she was 12 years old, Highsmith was sent to Fort Worth and lived with her grandmother for a year. She called this the "saddest year" of her life and felt "abandoned" by her mother. She returned to New York to continue living with her mother and stepfather, primarily in Manhattan, but also in Astoria, Queens.
According to Highsmith, her mother once told her that she had tried to abort her by drinking turpentine, although a biography of Highsmith indicates Jay Plangman tried to persuade his wife to have the abortion but she refused. Highsmith never resolved this love–hate relationship, which reportedly haunted her for the rest of her life, and which she fictionalized in "The Terrapin," her short story about a young boy who stabs his mother to death. Highsmith's mother predeceased her by only four years, dying at the age of 95.
Highsmith's grandmother taught her to read at an early age, and she made good use of her grandmother's extensive library. At the age of nine, she found a resemblance to her own imaginative life in the case histories of The Human Mind by Karl Menninger, a popularizer of Freudian analysis.
Many of Highsmith's 22 novels were set in Greenwich Village, where she lived at 48 Grove Street from 1940 to 1942, before moving to 345 E. 57th Street. In 1942, Highsmith graduated from Barnard College, where she studied English composition, playwriting, and short story prose. After graduating from college, and despite endorsements from "highly placed professionals," she applied without success for a job at publications such as Harper's Bazaar, Vogue, Mademoiselle, Good Housekeeping, Time, Fortune, and The New Yorker.
Based on the recommendation from Truman Capote, Highsmith was accepted by the Yaddo artist's retreat during the summer of 1948, where she worked on her first novel, Strangers on a Train.