Phoolan was born into the lower mallah caste, in a family of Mallah (boatmen), in the small village of Gorha ka Purwa in Uttar Pradesh, India. She was the second child in a family of four girls and a boy. Her father owned an acre of land near G.B. Road and a huge Neem tree on it. The valuable timber that could be derived from the tree was, effectively, the family's nest egg.

When Phoolan was ten years old, her cousin, Mayadin, became the head of the family. He sent workers to cut down the Neem tree and sell the wood, intending to keep the proceeds for himself. Although her father saw no use in protest, Phoolan confronted her cousin. She taunted him, publicly called him a thief, and with her older sister staged a sit-in on his land. Even after violence against Phoolan—knocking her out with a brick—she wouldn't relent. In an effort to rid himself of the little nuisance, Mayadin arranged to have her married to a man named Putti Lal, who lived several hundred miles away. Putti Lal was in his thirties; Phoolan was eleven. Devi claimed in her autobiography that he was a man of "very bad character".

There are conflicting reports as to the events of Phoolan's life after this point.

Some accounts say that she feared her husband and refused to live with him. He was already married, so Phoolan was relegated to household labour. Miserable, she ran away to her village, much to the horror of her family. In the day, it was believed a wife simply cannot leave her husband. Phoolan's mother, Moola, was so ashamed that she told her daughter to go to jump in a well and kill herself.

Other accounts say her husband raped and mistreated her, but that she did not know what was happening. They further claim she became seriously ill and her father came to take her to the hospital. Her parents publicly declared the marriage ended in front of the villagers. She did not see her husband for two years, until she was 13. This account claims he then came and took her back to his house where he was living with his "second wife", an older woman. The "second wife" beat Phoolan and treated her like a slave, restricted Phoolan's food, and made her sleep in the cow-shed. Eventually, the husband decided to take Phoolan back to her village and family.

In any respect, it came about that Phoolan's marriage ended and she was marked as a social outcast; even her family rejected her. Returning to Gorha ka Purwa, Phoolan continued to challenge Mayadin. She took him to court for unlawfully holding her father's land. During court proceedings, she seldom controlled her emotions. Her dramatic outbursts often left the courtroom stunned.

In 1979, Mayadin accused Phoolan of stealing from his house. She denied the accusation, but the police arrested her anyway. In those three days in jail, she was beaten and raped repeatedly, then left in a rat-infested cell. She knew that her cousin was behind the injustice against her. The experience broke her body but ignited her hatred for men who routinely denigrated women. When released from prison, she was further shunned by her village and her family.

In 1979, a gang of dacoits abducted Phoolan. The gang leader, Baboo, who was an upper-caste Thakur, wanted to rape her. However, she was protected by Vikram, the deputy leader of the gang who belonged to Phoolan's caste, Mallah. One night when Baboo attempted to rape Phoolan, Vikram killed him and assumed the gang leadership. Phoolan became Vikram's second wife. The gang ransacked the village where Phoolan's husband lived. Phoolan stabbed her estranged husband, and dragged him in front of the villagers. The gang left him lying almost dead by the road, with a note as a warning for older men who marry young girls.

Phoolan Devi learned how to use a rifle from Vikram, and participated in the gang's activities, which consisted of ransacking high-caste villages and kidnapping upper-caste landowners for ransom. After every crime, Phoolan Devi would visit a Durga temple and thank the goddess for her protection. The gang hid out in the Chambal ravine.

Later, Shri Ram got out of jail and claimed the leadership of the gang. He belonged to the Thakur caste, and would make sexual advances towards Phoolan. This led to tensions between Shri Ram and Vikram, who made him apologize to Phoolan. When the gang would ransack a village, Shri Ram would beat and insult the Mallahs. This displeased the Mallahs in the gang, many of whom left the gang. When Shri Ram got a dozen Thakurs to join the gang, Vikram suggested the gang be divided into two, but Shri Ram refused. Shortly afterwards, Shri Ram and other Thakur members in the gang attempted to kill Phoolan and Vikram, who managed to escape. However, later they successfully killed Vikram Mallah, abducted Phoolan and locked her up in the Behmai village. Phoolan Devi was raped by many men in Behmai. After three weeks, she managed to escape with two other Mallahs from Vikram's gang, helped by a lower-caste villager. She gathered a gang of Mallahs, that she led with Man Singh, a member of Vikram's former gang. The gang carried out a series of violent robberies in north and central India, mainly targeting upper-caste people. Some say that Phoolan Devi targeted only the upper-caste people and shared the loot with the lower-caste people, but the Indian authorities insist this is a myth.