Naomi Watts was born on September 28, 1968, in Shoreham, England, the United Kingdom, to Peter Watts and Myfanwy Edwards. Her mother was a dealer in antiques while she was also engaged in set and costume designing. Watts’ father was a sound engineer who worked with the famous rock band Pink Floyd. Her father's laugh can be heard in the Pink Floyd songs "Speak to Me" and "Brain Damage" from their 1973 album Dark Side of the Moon.
Watts’ parents divorced in 1972 and she went to live with her mother. During this time, the family of three, including her brother Ben Watts moved around a lot and lived in Wales for some time. Watts initially studied at a school where the medium of instruction was Welsh.
Peter Watts left Pink Floyd in 1974, and he and Myfanwy were later reconciled. Two years later, in August 1976, he was found dead in a flat in Notting Hill, of an apparent heroin overdose. Following his death, Watts's mother moved the family to Llanfawr Farm in Llangefni and Llanfairpwllgwyngyll, towns on the island of Anglesey in North Wales, where they lived with Watts's maternal grandparents, Nikki and Hugh Roberts, for three years.
Following her mother’s second marriage in 1978, Watts moved to England and the family lived in Suffolk. Four years after her dad's death, her mother Myfannwy moved the family to Sydney, where Naomi began pursuing an acting career. At one audition, the teenager met someone who would become one of her closest friends, fellow aspiring actress Nicole Kidman.
Regarding her nationality, Watts has stated: "I consider myself British and have very happy memories of the UK. I spent the first 14 years of my life in England and Wales and never wanted to leave. When I was in Australia I went back to England a lot." She also has expressed her ties to Australia, declaring: "I consider myself very connected to Australia, in fact when people say where is home, I say Australia because those are my most powerful memories."