Jarrett was born on November 26, 1956 in Conover, North Carolina, the middle child of Ned and Martha. Jarrett has an older brother, Glenn; and a younger sister, Patti. Jarrett's father Ned competed in the NASCAR Grand National Division between 1953 to 1966, winning two series championships in 1961 and 1965. Following retirement, Ned remained active in the racing community as manager of Hickory Motor Speedway and later established a career in broadcasting.
Jarrett spent his childhood traveling to his father's races across the Southern United States. He was introduced to golf by age twelve; he also played football, basketball and baseball while attending Newton-Conover High School. Jarrett led his high school's golf team to three conference championships, and was named the school's athlete of the year as a senior. Following graduation in 1975, Jarrett worked at Hickory Motor Speedway, the track his father managed. Jarrett was offered a full golf scholarship from the University of South Carolina, which he declined. Though he continued to play golf, Jarrett was interested in following his father's footsteps as a racing driver.
In April 1977, Jarrett entered his first professional race in the Limited Sportsman Division at Hickory. His vehicle, a 1968 Chevrolet Nova, was built by Andy Petree and Jimmy Newsome. Jarrett started last and finished in ninth place; it was after this event when Jarrett knew that he wanted to race for a living. Jarrett continued to compete in the Limited Sportsman Division for two years, before moving up to the Dash Series and then the Late Model Sportsman Division, the latter in which he earned his first victory.

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