Rai was born on 1 November 1973 into a Tulu speaking Bunt family in Mangalore, Karnataka. Her father, Krishnaraj, who died on 18 March 2017, was an Army biologist, while her mother, Vrinda, is a homemaker. She has one elder brother, Aditya Rai, who is an engineer in the merchant navy. Rai's movie "Dil Ka Rishta" (2003) was co-produced by her brother and co-written by her mother. The family moved to Mumbai, where Rai attended the Arya Vidya Mandir High School. Rai did her intermediate schooling at Jai Hind College for a year, and then joined DG Ruparel College in Matunga, securing 90 percent in the HSC exams.