Tobin was born on March 5, 1918 in Champaign, Illinois. His father was Louis Michael Tobin, (b.1899) a journalist working at the University of Illinois at Urbana-Champaign. His father had fought in World War I, was a member of the first Greek Organization at Illinois (Delta Tau Delta fraternity Beta Upsilon chapter), and was credited as the inventor of 'Homecoming'. His mother, Margaret Edgerton Tobin (b.1893), was a social worker. Tobin followed primary school at the University Laboratory High School of Urbana, Illinois, a laboratory school in the university's campus.
In 1935, on his father's advice, Tobin took the entrance exams for Harvard University. Despite no special preparation for the exams, he passed and was admitted with a national scholarship from the university. Here among the faculty he would meet Joseph Schumpeter, Alvin Hansen, Gottfried Haberler, Sumner Slichter, Seymour Harris, Edward Mason, Edward Chamberlin, John Kenneth Galbraith and Wassily Leontief. During his studies he first read Keynes' General Theory of Employment, Interest and Money, published in 1936. Tobin graduated summa cum laude in 1939 with a thesis centered on a critical analysis of Keynes' mechanism for introducing equilibrium "involuntary" unemployment. His first published article, in 1941, was based on this senior's thesis.
Tobin immediately started graduate studies, also at Harvard, earning his M.A. degree in 1940. His fellow graduate students included Paul Samuelson, Lloyd Metzler, Abram Bergson, Richard Musgrave and Richard M. Goodwin. In 1941, he interrupted graduate studies to work for the Office of Price Administration and Civilian Supply and the War Production Board in Washington, D.C.. The next year, after the United States entered World War II, he enrolled in the US Navy, spending the war as an officer on a destroyer. At the end of the war he returned to Harvard and resumed studies, receiving his Ph.D. in 1947 with a thesis on the consumption function written under the supervision of Joseph Schumpeter. In 1947 Tobin was elected a Junior Fellow of Harvard's Society of Fellows, which allowed him the freedom and funding to spend the next three years studying and doing research.