James attended Castlemaine State School. At the age of twelve he won a scholarship to Scotch College, Melbourne to the value of £35 per annum for six years. He was dux of the school in 1880. At Scotch College McCay first met John Monash, who would be dux the following year, and would later become a close friend. McCay entered Ormond College at the University of Melbourne in 1881, the year that the college first opened, and commenced studying for his Bachelor of Arts (BA) degree. McCay left the university without completing his degree in 1883 and took a job as a teacher at Toorak Grammar School. In 1885, he bought Castlemaine Grammar School. The school was co-educational; McCay believed that girls should have the same opportunities as boys. Among its students who attended university with McCay's encouragement and support was Sussanah Jane Williams, who later became principal of Janet Clarke Hall at the University of Melbourne, and The Women's College at the University of Sydney. The job of running the school was soon delegated to McCay's mother and brother Adam.