Spacey was born in South Orange, New Jersey, to Kathleen Ann (nee Knutson), a secretary, and Thomas Geoffrey Fowler, a technical writer and data consultant. He has an older brother, Randy Fowler, who is a limo driver and Rod Stewart impersonator in Boise, Idaho, and a sister, Julie Ann Fowler Keir, an office worker. His family relocated to Southern California when Spacey was four years old. Randy Fowler (from whom Spacey is estranged) has stated that their father, whom he described as a racist "Nazi supporter", was sexually and physically abusive, and that Spacey had shut down emotionally and become "very sly and smart" to avoid whippings.

Spacey's first professional stage appearance was as a spear carrier in a New York Shakespeare Festival performance of Henry VI, Part 1 in 1981. The following year, he made his first Broadway appearance, as Oswald in a production of Henrik Ibsen's Ghosts, starring Liv Ullmann. Then he portrayed Philinte in Moliere's The Misanthrope. In 1984, he appeared in a production of David Rabe's Hurlyburly, in which he rotated through each of the male parts (he would later play Mickey in the film version). Next came Anton Chekhov's The Seagull. In 1986, he appeared in a production of Sleuth in a New Jersey dinner theatre. His prominence as a stage actor began in 1986, when he was cast opposite Jack Lemmon, Peter Gallagher and Bethel Leslie as Jamie, the eldest Tyrone son, in Jonathan Miller's lauded production of Eugene O'Neill's Long Day's Journey into Night. Lemmon in particular would become a mentor to him and was invited, along with Spacey's high school drama teacher, to be present when Spacey received his star on the Hollywood Walk of Fame in 1999. He made his first major television appearance in the second-season premiere of Crime Story, playing a Kennedy-esque American senator. Although his interest soon turned to film, Spacey remained actively involved in the live theater community. In 1991, he won a Tony Award for his portrayal of Uncle Louie in Neil Simon's Broadway hit Lost in Yonkers. Spacey's father was unconvinced that Spacey could make a career for himself as an actor, and did not change his mind until Spacey became well-known. Some of Spacey's early roles include a widowed eccentric millionaire on L.A. Law, the television miniseries The Murder of Mary Phagan (1988), opposite Lemmon, and the comedy See No Evil, Hear No Evil (1989). He earned a fan base after playing the criminally insane arms dealer Mel Profitt on the television series Wiseguy. He quickly developed a reputation as a character actor, and was cast in bigger roles, including one-half of a bickering Connecticut couple in the dark comedy film The Ref (1994), a malicious Hollywood studio boss in the satire Swimming with Sharks, and the malevolent office manager in the ensemble film Glengarry Glen Ross (1992), gaining him positive notices by critics. His performance as the enigmatic criminal Verbal Kint in 1995's The Usual Suspects won him the Academy Award for Best Supporting Actor. Spacey appeared in the 1995 thriller film Seven, making a sudden entrance late in the film as the serial killer John Doe after going unmentioned in the film's advertisements and opening credits. His work in Seven, The Usual Suspects and Outbreak earned him Best Supporting Actor honors at the 1995 Society of Texas Film Critics Awards. He remarked in 2013: "I think people just like me evil for some reason. They want me to be a son of a bitch." Spacey played an egomaniacal district attorney in A Time to Kill (1996), and founded Trigger Street Productions in 1997, with the purpose of producing and developing entertainment across various media. He made his directorial debut with the film Albino Alligator (1996). The film was a failure at the box office, grossing $339,379 with a budget of $6 million, but critics praised Spacey's direction. He also voiced Hopper in the animated film A Bug's Life (1998).

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