Ernst Hanfstaengl, nicknamed "Putzi", was born in Munich, Germany, the son of a wealthy German art publisher, Edgar Hanfstaengl, and an American mother. He spent most of his early years in Germany and later moved to the United States. His mother was Katharine Wilhelmina Heine, daughter of William Heine, a cousin of John Sedgwick. His godfather was Duke Ernst II. He had one sister, Erna. He attended Harvard University and became acquainted with Walter Lippmann and John Reed. A gifted pianist, he composed several songs for Harvard's football team. He graduated in 1909. According to John Tolland's biography of Hitler, Hanfstaengl was a tall man, almost six and a half feet tall; his nickname, "Putzi", was a sort of a joke, since it means "little" or "cute".
He moved to New York City and took over the management of the American branch of his father's business, the Franz Hanfstaengl Fine Arts Publishing House. Every morning, he would practice on the piano at the New York Harvard Club, where he became acquainted with both Franklin and Theodore Roosevelt. Among his circle of acquaintances were the newspaper baron William Randolph Hearst, author Djuna Barnes, and actor Charlie Chaplin.