Bilson was born in Los Angeles, California, the daughter of Janice (née Stango), a sex therapist, and Danny Bilson, a writer, director, and producer. Rachel Bilson's father is Jewish and her mother is a Philadelphia-born Italian American. Bilson's father comes from a show business family; her great-grandfather, George Bilson, was the head of the trailer department at RKO Pictures, while her Brooklyn-born great-grandmother, Hattie Bilson, was a screenwriter and her grandfather, Bruce Bilson, is a film director. Bilson's parents divorced during her childhood, and in 1997, her father remarried Heather Medway, an actress and the mother of Bilson's half-sister Hattie (born December 19, 2001).

Bilson has been noted as having a "self-destructive, rebellious period" during her teen years. When she was 13, she and a group of her brother's friends were involved in a car accident, a head-on collision with another car. As a result, Bilson was unconscious for a few days, had a scar above