Juan Carlos was born to Infante Juan, Count of Barcelona and Princess Maria Mercedes of Bourbon-Two Sicilies in Rome, Italy, where his grandfather, King Alfonso XIII of Spain, and other members of the Spanish Royal Family lived in exile following the proclamation of the Second Spanish Republic in 1931. He was baptized as Juan Carlos Alfonso Victor Maria de Borbon y Borbon-Dos Sicilias. He was given the name Juan Carlos after his father and maternal grandfather, Prince Carlos of Bourbon-Two Sicilies. His early life was dictated largely by the political concerns of his father and General Franco.

On the evening of Holy Thursday, 29 March 1956, Juan Carlos's younger brother Alfonso died in a gun accident at the family's home Villa Giralda in Estoril, Portugal. The Spanish Embassy in Portugal then issued the following official communique:  Whilst His Highness Prince Alfonso was cleaning a revolver last evening with his brother, a shot was fired hitting his forehead and killing him in a few minutes. The accident took place at 20.30 hours, after the Infante's return from the Maundy Thursday religious service, during which he had received holy communion.  Alfonso had won a local junior golf tournament earlier in the day, then went to evening Mass and rushed up to the room to see Juan Carlos who had come home for the Easter holidays from military school. It is alleged that Juan Carlos began playing with a gun that had apparently been given to Alfonso by General Franco. Rumors appeared in newspapers that the gun had actually been held by Juan Carlos at the moment the shot was fired.  As they were alone in the room, it is unclear how Alfonso was shot, but according to Josefina Carolo, dressmaker to Juan Carlos's mother, Juan Carlos pointed the pistol at Alfonso and pulled the trigger, unaware that it was loaded. Bernardo Arnoso, a Portuguese friend of Juan Carlos, also said that Juan Carlos fired the pistol not knowing that it was loaded, and adding that the bullet ricocheted off a wall, hitting Alfonso in the face. Helena Matheopoulos, a Greek author who spoke with Juan Carlos's sister Pilar, said that Alfonso had been out of the room and when he returned and pushed the door open, the door knocked Juan Carlos in the arm, causing him to fire the pistol.

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