Parker was born in Conifer, Colorado, the son of insurance saleswoman Sharon and geologist Randolph "Randy" Parker. He was a shy child who received "decent" grades and was involved in honors classes. He idolized Monty Python, which he began watching on television in the third grade; his later ventures into animation would bear considerable influence from Terry Gilliam. In the sixth grade, Parker wrote a sketch titled The Dentist and appeared in his school's talent show. He played the dentist and had a friend play the patient. The plot involved what can go wrong at the dentist; due to the amounts of fake blood involved, Parker's parents were called and were upset, with Parker later recalling that "the kindergartners were all crying and freaking out".
Parker has described himself as "the typical big-dream kid" who envisioned a career in film and music. He made short films on the weekends with a group of friends, beginning when he was 14. His father had purchased him a video camera and the group continued making films until graduation. He became interested in pursuing music at 17, but only comedy-centered songs; he wrote and recorded a full-length comedy album, Immature: A Collection of Love Ballads For The '80's Man, with friend David Goodman during this time. As a teenager, Parker developed a love for musical theatre, and joined the Evergreen Players, a venerable mountain community theater outside of Denver. At 14, he performed his first role as chorus member in The Best Little Whorehouse in Texas and Flower Drum Song and went on to also design sets for the community theater's production of Little Shop of Horrors. In high school, he also played piano for the chorus and was president of the choir counsel. As Evergreen was nationally known for its choir program, Parker was a very popular high school student, connected to his position as the head of the choir. He was typically the lead in school plays and was also prom king. While in school, Parker had a part-time job at a Pizza Hut and was described as a film geek and music buff.
Following his graduation from high school in 1988, Parker spent a semester at Berklee College of Music before transferring to the University of Colorado at Boulder. During his time there, he took a film class in which students were required to collaborate on projects. In the course, he met Matt Stone — a math major from the nearby town of Littleton — and the two immediately bonded over provocative, anti-authoritarian humor and Monty Python. Parker's first film was titled Giant Beavers of Southern Sri Lanka (1989), parodying Godzilla-style rampages with beavers; fellow student Jason McHugh later remarked that the idea nearly got him laughed out of class. Parker and Stone wrote and acted in many short films together, among those First Date, Man on Mars and Job Application. Parker later remarked that he and Stone would shoot a film nearly every week, but he has since lost most of them. Parker first used a construction paper animation technique on American History (1992), a short film made for his college animation class. It became an unexpected sensation, resulting in Parker's first award — a Student Academy Award. Parker recalled sitting in the auditorium in front of students from animation schools such as CalArts, who had produced works of a higher artistic caliber and were "fuming" that he won.