Raised in Wales on the Ll≈∑n Peninsula with her twin sister, Katy, her parents divorced when she was 10, and she moved to Pembrokeshire with her mother and sisters, while her father remained in Nefyn. Her early interest in singing was apparently inspired by her father John Duffy's videotape of the 1960s television rock show Ready Steady Go! .

According to a report in a British tabloid, Duffy was put in a safe house in 1998 when police uncovered a plot by her stepfather's ex-wife to pay a hitman £3000 to kill her stepfather identified as Philip Smith. Subsequently her stepfather's ex-wife served a three and one half year jail term for the incident. A 1998 article in another British tabloid quotes a man identified as Philip Smith describing similar circumstances. The tabloid quoted Duffy as saying about the alleged incident "I was so terrified. I felt so ill."

Duffy returned to Nefyn when she was 15, and started singing in various local bands. After being involved in an unsuccessful music project in Switzerland, Duffy returned to Wales in 2003 and auditioned for Wawffactor, a Welsh alternative to Pop Idol on S4C where she was expected to win, but eventually came second to winner Lisa Pedrig.

Duffy was elected president of the Students Union at Coleg Meirion-Dwyfor, before transferring to study at the University of Chester, Chester, England where she built up a following in Alexanders, a local jazz and blues club playing with guitarist David Burton from the band, "The Invisible Wires".

She recorded a three-songs-EP in Welsh in 2004 and also appeared on two tracks on the album See You in the Morning by Mint Royale while working as a waitress and in a fishery. Owen Powell of Catatonia and Richard Parfitt of Newport band 60ft Dolls, introduced Duffy in August 2004 to former Public Image Ltd. member turned music manager and part-owner of Rough Trade Records Jeanette Lee. Lee moved Duffy to Crouch End in London, and orchestrated a meeting between Duffy and Suede's ex-guitar player Bernard Butler, who then co-wrote with her and helped create a new retro sound. Together with another rising star, Adele, Duffy was the most prominent of the so-called "new Amys" (a reference to singer Amy Winehouse) : for example, under the sub-title, "The New Amys", Adam Thompson wrote in The Times on 30 December 2007 that "Duffy, Gabriella Cilmi and Adele lead the charge to be the next Winehouse. First sightings seem to indicate that they are all bright-eyed innocents with bags of talent - a familiar starting point, no?" Duffy herself disliked being referred to as "the new Dusty Springfield" .