Lauterbur was of Luxembourgish ancestry. Born and raised in Sidney, Ohio, Lauterbur graduated from Sidney High School, where a new Chemistry, Physics, and Biology wing was dedicated in his honor. As a teenager, he built his own laboratory in the basement of his parents' house.  His chemistry teacher at school understood that he enjoyed experimenting on his own, so the teacher allowed him to do his own experiments at the back of class.
When he was drafted into the United States Army in the 1953 and was assigned to the Army Chemical Center in Edgewood, Maryland. His superiors allowed him to spend his time working on an early nuclear magnetic resonance (NMR) machine; he had published four scientific papers by the time he left the Army. Paul became an atheist later on.