Colbert originally studied to be an actor, but became interested in improvisational theatre when he met famed Second City director Del Close while attending Northwestern University. He first performed professionally as an understudy for Steve Carell at Second City Chicago; among his troupe mates were comedians Paul Dinello and Amy Sedaris, with whom he developed the critically acclaimed sketch comedy series Exit 57.

Colbert also wrote and performed on the short-lived Dana Carvey Show before collaborating with Sedaris and Dinello again on the cult television series Strangers with Candy. He gained considerable attention for his role on the latter as closeted, gay history teacher Chuck Noblet. It was his work as a correspondent on Comedy Central's news-parody series The Daily Show, however, that first introduced him to a wide audience.

In 2005, he left The Daily Show with Jon Stewart to host a spin-off series, The Colbert Report. Following The Daily Show's news-parody concept, The Colbert Report is a parody of personality-driven political opinion shows such as The O'Reilly Factor. Since its debut, the series has established itself as one of Comedy Central's highest-rated series, earning Colbert three Emmy nominations and an invitation to perform as featured entertainer at the White House Correspondents' Association Dinner in 2006. Colbert was named one of Time's 100 most influential people in 2006. His book, I Am America (And So Can You!), was No. 1 on The New York Times Best Seller List.

Colbert was born in Washington, D.C. and grew up in Charleston, South Carolina, on James Island, the youngest of eleven children in an Irish Catholic family. The Colbert children, in order from oldest to youngest, were James ("Jimmy"), Edward ("Eddie"), Mary, William ("Billy"), Margo, Thomas ("Tommy"), Jay, Elizabeth ("Lulu"), Paul, Peter, and Stephen.

According to research presented by Professor Henry Louis Gates, Jr., of Harvard University, for the 2010 PBS series Faces of America, many of his ancestors immigrated to North America from Ireland in the 1800s before and during the Great Famine.

His father, James William Colbert, Jr., was the vice president for academic affairs at the Medical University of South Carolina. His mother, Lorna Colbert (née Tuck), was a housewife. In interviews, Colbert has described his parents as devout people who also strongly valued intellectualism and taught their children that it was possible to question the Church and still be Catholic. The emphasis his family placed on intelligence and his observation of negative stereotypes of Southerners led Colbert to train himself to suppress his Southern accent while he was still quite young. As a child, he observed that Southerners were often depicted as being less intelligent than other characters on scripted television; to avoid that stereotype, he taught himself to imitate the speech of American news anchors.

Colbert sometimes comedically claims his surname is French, but his family is actually of Irish and distant German descent. Originally, the name was pronounced /ˈkoʊlbərt/ in English; Stephen Colbert's father, James, wanted to pronounce the name /koʊlˈbɛər/, but maintained the /ˈkoʊlbərt/ pronunciation out of respect for his own father. However, James offered his children the option to pronounce the name whichever way they preferred. Stephen started using /koʊlˈbɛər/ later in life when he transferred to Northwestern University, taking advantage of the opportunity to reinvent himself in a new place where no one knew him. Stephen's brother Ed, an intellectual property attorney, retained /ˈkoʊlbərt/; this was shown in a February 12, 2009 appearance on The Colbert Report, when his youngest brother asked him, "/koʊlˈbɛər/ or /ˈkoʊlbərt/?" Ed responded "/ˈkoʊlbərt/", to which Stephen jokingly replied, "See you in Hell".

On September 11, 1974, when Colbert was ten years old, his father and two of his brothers, Peter and Paul, were killed in the crash of Eastern Air Lines Flight 212 while it was attempting to land in Charlotte, North Carolina. They were en route to enroll the two boys at Canterbury School in New Milford, Connecticut. Shortly thereafter, Lorna Colbert relocated the family downtown to the more urban environment of East Bay Street in Charleston. By his own account, Colbert found the transition difficult and did not easily make new friends in his new neighborhood. Colbert later described himself during this time as detached, lacking a sense of importance regarding the things with which other children concerned themselves. He developed a love of science fiction and fantasy novels, especially the works of J. R. R. Tolkien, of which he remains an avid fan. During his adolescence, he also developed an intense interest in fantasy role-playing games, especially Dungeons & Dragons, a pastime which he later characterized as an early experience in acting and improvisation.

Colbert attended Charleston's Episcopal Porter-Gaud School, where he participated in several school plays and contributed to the school newspaper but, by his own assessment, was not highly motivated academically. During his time as a teenager, he also briefly fronted a Rolling Stones cover band. When he was younger, he had hoped to study marine biology, but surgery intended to repair a severely perforated eardrum caused him inner ear damage. The damage was severe enough that he was unable to pursue a career that would involve scuba diving. The damage also left him deaf in his right ear. For a while, he was uncertain whether he would attend college, but ultimately he applied and was accepted to Hampden-Sydney College in Virginia, where a friend had also enrolled. There he continued to participate in plays while studying mainly philosophy; he found the curriculum rigorous but was more focused than he had been in high school and was able to apply himself to his studies. Despite the lack of a significant theater community at Hampden-Sydney, Colbert's interest in acting escalated during this time. After two years, he transferred to Northwestern University's School of Speech (later named School of Communication) to study performance, emboldened by the realization that he loved performing even when no one was coming to shows.

While at Northwestern, Colbert studied with the intent of becoming a dramatic actor; mostly he performed in experimental plays and was uninterested in comedy. He began performing improvisation at the Annoyance Theatre in Chicago as a part of Del Close's ImprovOlympic at a time when the project was focused on competitive, long form improvisation, rather than improvisational comedy. "I wasn't gonna do Second City", Colbert later recalled, "because those Annoyance people looked down on Second City because they thought it wasn't pure improv—there was a slightly snobby, mystical quality to the Annoyance people". After Colbert graduated in 1986, however, he was in need of a job, and a friend who was employed at Second City's box office offered him work answering phones and selling souvenirs. Colbert accepted, and discovered that Second City employees were entitled to take classes at their training center for free. Despite his earlier aversion to the comedy group, he signed up for improvisation classes, and enjoyed the experience greatly.