McKay (pronounced IPA: [mɪkaj] "McEYE") was born in London, England to a Scottish writer/director, Malcolm McKay, and an American actress, Robin Pappas. At the age of two, after her parents divorced, she moved with her mother to New York City, where they stayed until 1994. After one year in Olympia, Washington, the two returned east and lived in the Poconos, where McKay spent her high-school years. In 2000, Nellie McKay graduated from Pocono Mountain Senior High School.

In 2000, McKay started attending the Manhattan School of Music. Bored and unsatisfied, she dropped out after two years. She started performing as a stand-up comic in Manhattan clubs, and eventually Greenwich Village's gay bars. McKay was briefly associated with New York's anti-folk scene and played alongside Jason Trachtenburg and others at the Sidewalk Cafe in 2002-2003.

In February 2003 McKay opened for the Trachtenburg Family Slideshow Players at Tonic, on New York's Lower East Side. Jay Rutten