Rai was born into an ethnic Bunt family in Mangalore, Karnataka. Her father, Krishnaraj, was a marine biologist, while her mother, Brindya, is a housewife. She has one elder brother, Aditya Rai, who is an engineer in the merchant navy. He co-produced one of her movies, Dil Ka Rishta (2003).
The family moved to Mumbai, where Rai attended the Arya Vidya Mandir High School. Rai did her intermediate schooling at Jai Hind College for a year, and then joined DG Ruparel College in Matunga, securing 90 percent in the HSC exams. She trained in classical dance and music for five years during her teens. Her favourite subject was zoology, so she initially considered a career in medicine. With plans to become an architect, she enrolled at Raheja College, but later gave up her education to pursue a career in modelling.
