Caesar was the youngest of three sons born to Jewish immigrants living in Yonkers, New York. His father was Max Ziser (1874-1946) and his mother was Ida (nee Raphael) (1887-1975). They likely were from Dabrowa Tarnowska, Poland. Reports state that the surname "Caesar" was given to Max, as a child, by an immigration official at Ellis Island.

After graduating from Yonkers High School in 1939, Caesar left home, intent on a musical career. He arrived in Manhattan and worked as an usher and then a doorman at the Capitol Theater there. He was ineligible to join the musicians' union in New York City until he established residency, but he found work as a saxophonist at the Vacationland Hotel, a resort located in the Catskill Mountains of Sullivan County, New York. Mentored by Don Appel, the resort's social director, Caesar played in the dance band and learned to perform comedy, doing three shows a week. He audited classes in clarinet and saxophone at the Juilliard School of Music. In 1939, he enlisted in the United States Coast Guard, and was stationed in Brooklyn, New York, where he played in military revues and shows. Vernon Duke, the composer of Autumn in New York, April in Paris, and Taking a Chance on Love, was at the same base and collaborated with Caesar on musical revues. During the summer of 1942, Caesar met his future wife, Florence Levy, at the Avon Lodge in the Catskills village of Woodridge, New York. They were married on July 17, 1943, and had three children: Michele, Rick and Karen. After joining the musicians' union, he briefly played with Shep Fields, Claude Thornhill, Charlie Spivak, Art Mooney and Benny Goodman. Later in his career, he performed "Sing, Sing, Sing" with Goodman for a TV performance. Still in the service, Caesar was ordered to Palm Beach, Florida, where Vernon Duke and Howard Dietz were putting together a service revue called Tars and Spars. There he met the civilian director of the show, Max Liebman. When Caesar's comedy got bigger applause than the musical numbers, Liebman asked him to do stand-up bits between the songs. Tars and Spars toured nationally, and became Caesar's first major gig as a comedian. Liebman later produced Caesar's first television series. After the war, the Caesars moved to Hollywood. In 1946, Columbia Pictures produced a film version of Tars and Spars in which Caesar reprised his role. The next year, he acted in The Guilt of Janet Ames. He turned down the lead of The Jolson Story as he did not want to be known as an impersonator, and turned down several other offers to play sidekick roles. He soon returned to New York, where he became the opening act for Joe E. Lewis at the Copacabana nightclub. He reunited with Liebman, who guided his stage material and presentation. That job led to a contract with the William Morris Agency and a nationwide tour. Caesar also performed in a Broadway revue, Make Mine Manhattan, which featured The Five Dollar Date--one of his first original pieces, in which he sang, acted, double-talked, pantomimed, and wrote the music. He won a 1948 Donaldson Award for his contributions to the musical.

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