Peterman was the third of four children born to Charles and Sally Peterman. He had two brothers and a sister. Charles Peterman became a loan officer and, later, the assistant vice president of the Irving Trust Co. after working his way up from the mailroom. John Peterman grew up in Van Houten Fields, an agrarian commune in West Nyack, New York. Those who were part of the community built their own houses and grew a portion of their own food. Peterman learned to garden, tend chickens, and participate in other physical labor. His mother worked as an administrative assistant after her children started school.
As a high schooler, Peterman attended Clarkstown High School and participated in basketball, baseball, and football. He was recognized in the local newspaper for his performance in all three sports. In baseball, he played second base and was voted All-P.S.A.L Baseball first team selection as a second baseman. He graduated from Clarkstown High School in 1960.
Peterman graduated from the College of the Holy Cross, in Worcester, Massachusetts in 1963 with a Bachelor of Science in economics. He played third base on the Holy Cross baseball teams that went to the College World Series in 1962 and 1963. As a junior in 1962, he had a .362 batting average, and as a senior in 1963, he had a .291 batting average and led his team with 17 runs batted in.

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