Carradine was born in San Mateo, California. He is the son of actress and artist Sonia Sorel (née Henius), and actor John Carradine. His full brothers are Christopher and Robert Carradine, all of whom are actors. His paternal half-brothers are Bruce and David Carradine. His maternal half-brother is Michael Bowen. His maternal great-grandfather was biochemist Max Henius, and his maternal great-grandmother was the sister of historian Johan Ludvig Heiberg.
Carradine's childhood was troubled; he has said that his father drank and his mother "was a manic depressive paranoid schizophrenic catatonic—she had it all." His parents were divorced in 1957, when he was eight years old. A bitter custody battle led to his father gaining custody of him and his brothers, Christopher and Robert, after the children had spent three months in a home for abused children as wards of the court. Keith said of the experience, "It was like being in jail. There were bars on the windows, and we were only allowed to see our parents through glass doors. It was very sad. We would stand there on either side of the glass door crying." He was raised in San Mateo primarily by his maternal grandmother, and he rarely saw either of his parents. His mother was not permitted to see him for eight years following the custody settlement.
Carradine attended the Ojai Valley School, where he was active in the school's theater department, performing in productions of Aria da Capo and The Madwoman of Chaillot. After high school, Carradine entertained the thought of becoming a forest ranger, and enrolled at Colorado State University in Fort Collins. "I had this idyllic fantasy of sitting somewhere communing with nature and chatting with the bears," he recalled, "[but] I didn’t want to have to learn anything." He changed his major to drama after enrolling, but dropped out after one semester and returned to California, moving in with his older half-brother, David, who encouraged him to pursue an acting career, paid for his acting and vocal lessons, and helped him get an agent.