Hiatt was born in 1952 to Ruth and Robert Hiatt, the sixth of seven children in a Roman Catholic family from Indianapolis. When he was nine years old, Hiatt's 21-year-old brother Michael died by suicide. Only two years later, his father died after a long illness. To escape the stress of his early life, Hiatt watched IndyCar racing and listened to Elvis Presley, Bob Dylan, and the blues. In his youth, Hiatt reports that he and several others stole a Ford Thunderbird, a crime for which he was caught by the owners but got away with, posing as a hitchhiker. He learned to play the guitar when he was eleven, and began his musical career in Indianapolis, Indiana, as a teenager. He played in a variety of local clubs, most notably the Hummingbird. Hiatt played with a variety of bands, including The Four-Fifths and John Lynch & the Hangmen.