Throughout his young life, Woody was surrounded by folk songs. His mother, Nora, loved the traditional English and Irish songs that had been passed down for generations. She often sang to Woody and his siblings when they were children, and had a marked influence at least on her third child, Woody. Many of his songs use the tunes from these old ballads, or borrow tunes from the cowboy songs that his father Charley enjoyed (See Picture). One of his mother's favorite songs which he later recorded was "A Picture From Life's Other Side," a collection of tragic verses of lives gone to waste. Tragedies like those recounted in the ballad would soon envelop the family.

Until Woody was twelve the family lived in Okemah, Oklahoma, where he had been born Woodrow Wilson Guthrie on July 14, 1912. However, after several comfortable years, in 1919 calamity struck the family: his sister Clara was died from extensive burns. There are various speculations as to the origin of these burns, but regardless of the cause, the young girl's death was a disaster for the Guthrie family. Not only was their daughter dead from horrifying burns, but the townspeople blamed Nora. She had become increasingly unbalanced and disruptive, symptoms of her undiagnosed Huntington's disease, a degenerative neurological disease that causes victims to lose control of their muscles. It frequently causes mental illness as well, as it did in Nora, making her frightening and violent. His mother's instability forced Woody to grow up fast and leave home early.

For most of his life, Charley Guthrie had been vibrant and outgoing, a well-to-do realtor and county official, but in 1920, oil was discovered nearby, and Okemah became a major supply center for thousands of people who had rushed to the area hoping to make a quick fortune. The Okemah oil boom hit Charley hard. His old business strategies failed him in the new climate, and he was broke by early 1923. Charley's failed attempt to relocate the family to Oklahoma City and Nora's increasing instability made living at home a challenge for Woody and his older brother Roy (their younger siblings were living in Texas with an aunt). Woody was spending as much time away from home as possible, coming home only to sleep.

Woody began to skip school in favor of hanging out with the migrant workers, unemployed men, and alcoholics who lingered on the outskirts of Okemah. He was a tireless audience for their stories and songs as he experimented with the harmonica. The store of songs and folklore he accumulated while listening to these people became a valuable resource later in life.