Ely was born in Williamsburg, Iowa, and raised in Davenport, Iowa. Having completed the eighth grade, he graduated from Davenport Grammar School 4 in January 1901. Although some sources indicate that he attended and graduated from Iowa State University in 1904 (when he would have been 17), the registrar of ISU reports that there is no record of him having done so (nor did he attend the University of Iowa or the University of Northern Iowa). Ely likewise does not appear in the graduations lists for Davenport High School. By 1904 he was employed as a chauffeur to the Rev. Fr. Smyth, a Catholic priest in Cosgrove, Iowa, who shared Ely's love of fast driving; in Father Smyth's car (a red Franklin), Ely set the speed record between Iowa City and Davenport.
Ely was living in San Francisco at the time of the earthquake and fire and was active there in the early days of the sales and racing of automobiles. He married Mabel Hall on August 7, 1907; he was 21 and she was 17, which meant the marriage required her mother's consent; they honeymooned in Colorado. The Elys relocated to Nevada City, California, in 1909, and for a time he drove an "auto stage" delivery route.
The couple moved to Portland, Oregon, in early 1910, where he got a job as an auto salesman, working for E. Henry Wemme. Soon after, Wemme purchased one of Glenn Curtiss' first four-cylinder biplanes and acquired the franchise for the Pacific Northwest. Wemme was unable to fly the Curtiss biplane, but Ely, believing that flying was as easy as driving a car, offered to fly it. He ended up crashing it instead, and feeling responsible, bought the wreck from Wemme. Within a few months he had repaired the aircraft and learned to fly. He flew it in the Portland area, then headed to Minneapolis, Minnesota in June 1910 to participate in an exhibition, where he met Curtiss and started working for him. After an unsuccessful attempt in Sioux City, Iowa, Ely's first reported exhibition on behalf of Curtiss was in Winnipeg in July 1910. Ely received Aero Club of America pilot's license #17 on October 5, 1910.