Allen was born in New York City, son of Billy (Carroll Abler) and Isabelle Allen (nee Donohue), a husband and wife vaudeville comedy team. He was raised on the South Side of Chicago largely by his mother's Irish Catholic family. Milton Berle called Allen's mother "the funniest woman in vaudeville". Allen's first radio job was on station KOY in Phoenix, Arizona, after he left Arizona State Teachers College (now Arizona State University) in Tempe while still a sophomore.

Allen's first television experience came in 1949 when he answered an ad for a TV announcer for professional wrestling. Although he knew nothing about wrestling, he watched some shows to gain insight, and discovered that the announcers did not have well-defined names for the wrestling holds. So, when he got the job he created names for many of the holds, some of which still are in use. After the first match got under way, Allen began ad-libbing in a comedic style which had audiences outside the arena laughing. An example:  Leone gives Smith a full nelson now, slipping it up from either a half-nelson or an Ozzie Nelson. Now the boys go into a double pretzel bend with variations on a theme by Velox and Yolanda.  After CBS radio gave Allen a weekly prime time show, CBS television believed it could groom him for national TV stardom and gave him his first network show. The Steve Allen Show premiered at 11 a.m. on Christmas Day, 1950, and was later moved into a thirty-minute, early evening slot. This new show required him to uproot his family and move from Los Angeles to New York, since at that time technology had not yet been developed that would allow a coast-to-coast program to originate from LA where the time zone was earlier than on the East Coast. The show ran until its cancellation in 1952, after which CBS tried several shows to showcase Allen's talent.  He achieved national attention when he was pressed into last-minute service to guest host the hugely popular Arthur Godfrey's Talent Scouts when Godfrey was unable to appear. He turned one of Godfrey's live Lipton tea and soup commercials upside down, preparing tea and instant soup on camera, then pouring both into Godfrey's iconic ukulele. With the audience (including Godfrey, watching from Miami) laughing uproariously and thoroughly entertained, Allen gained major plaudits both as a comedian and a host. Variety magazine editors who had seen the show wrote, "One of the most hilarious one-man comedy sequences projected over the TV cameras in many a day ... . The guy's a natural for the big time."  Allen also was a regular on the popular panel game show What's My Line? from 1953 to 1954, and returned frequently as a panelist until the series ended in 1967.

Did he have a huge audience?