Morgenthau was born, the ninth of 11 living children, in Mannheim, Grand Duchy of Baden, in 1856 into an Ashkenazi Jewish family. He was the son of Lazarus and Babette (Guggenheim) Morgenthau. His father was a successful cigar manufacturer who had cigar factories at Mannheim, Lorsch and Heppenheim, employing as many as 1,000 people (Mannheim had a population of 21,000 during this period). Having suffered a severe financial setback during the American Civil War, due to an 1862 tobacco tariff on imports, which closed German tobacco exports to the US forever, the family emigrated to New York in 1866. There, despite a considerable "nest egg" of cash, his father was unsuccessful in re-establishing himself in business, as his development and marketing of various inventions and his investments in other enterprises failed. Lazarus Morgenthau was able to stave off failure and stabilize his income by becoming a fundraiser for Jewish houses of worship. Henry attended City College of New York, where he received a BA, and later graduated from Columbia Law School. He began his career as a lawyer, but he made a substantial fortune in real estate investments. He married Josephine Sykes in 1882 and had four children: Helen, Alma, Henry Jr. and Ruth. Morgenthau built a successful career as a lawyer and served as the leader of the Reform Jewish community in New York.
Morgenthau's career enabled him to contribute handsomely to President Woodrow Wilson's election campaign in 1912. He had first met Wilson in 1911 at a dinner celebrating the fourth anniversary of the founding of the Free Synagogue society and the two "seem to have bonded", marking the "turning point in Morgenthau's political career". His role in American politics grew more pronounced in later months and though his desire to be designated the financial chairman of the campaign finance committee went unfulfilled, Wilson offered him the position of ambassador to the Ottoman Empire. He had hoped for a cabinet post as well, but was not successful in gaining one.