Peggy Gilbert was born Margaret Fern Knechtges Gilbert on January 17, 1905, in Sioux City, Iowa. Her father, John Darwin Knechtges, played in theater pit bands in Sioux City as a violinist, and her mother, Edith Ella Gilbert, sang for the opera house in Sioux City. Gilbert "was raised to respect all types of music and to love all kinds of music". She began to take piano lessons at age eight, and frequently accompanied her father to stage shows, playing piano in her first performance with his band.