Reed was born in Los Angeles, California, the daughter of Cheryl Houston, a hairdresser, and Seth Reed, a set designer. She has an older brother, Nathan. Reed's father is Jewish and her mother is of Cherokee and Italian descent; Reed was raised without religion though grew up around Judaism (her brother had a Bar Mitzvah).

Reed has described her home life as "complicated". She attended Palms Middle School. Her parents divorced when she was two, and she grew up with her mother. She describes herself as having been "shy and a bookworm", but at the age of twelve she became rebellious and emotionally volatile. The relationship between Reed and her mother became strained when Reed experimented with drugs, alcohol, and sex. At the age of fourteen, Reed moved out and began living on her own. She had no specific desire to become an actress.