Nikola was the fourth of five children, having one older brother (Dane, who was killed in a horse-riding accident when Nikola was five) and three sisters (Milka, Angelina and Marica). His family moved to Gospić in 1862. Tesla went to school in Karlovac. He finished a four year term in the span of three years.

Tesla then studied electrical engineering at the Austrian Polytechnic in Graz (1875). While there, he studied the uses of alternating current. Some sources say he received Baccalaureate degrees from the university at Graz. However, the university claims that he did not receive a degree and did not continue beyond the first semester of his third year, during which he stopped attending lectures. In December 1878 he left Graz and broke all relations with his family. His friends thought that he had drowned in Mura. He went to Maribor, (today's Slovenia), where he was first employed as an assistant engineer for a year. He suffered a nervous breakdown during this time. Tesla was later persuaded by his father to attend the Charles-Ferdinand University in Prague, which he attended for the summer term of 1880. Here, he was influenced by Ernst Mach. However, after his father died, he left the university, having completed only one term.

Tesla engaged in reading many works, memorizing complete books, supposedly having a photographic memory. Tesla related in his autobiography that he experienced detailed moments of inspiration. During his early life, Tesla was stricken with illness time and time again. He suffered a peculiar affliction in which blinding flashes of light would appear before his eyes, often accompanied by hallucinations. Much of the time the visions were linked to a word or idea he might have come across; just by hearing the name of an item, he would involuntarily envision it in realistic detail. Modern-day synesthetes report similar symptoms. Tesla would visualise an invention in his brain with extreme precision, including all dimensions, before moving to the construction stage; a technique sometimes known as picture thinking. He typically did not make drawings by hand, instead just conceiving all ideas with his mind. Tesla also often had flashbacks to events that had happened previously in his life; this began to happen during childhood.

In 1880, he moved to Budapest to work under Tivadar Puskás in a telegraph company, the National Telephone Company. There, he met Nebojša Petrović, a young, Serbian inventor who lived in Austria. Although their encounter was brief, they did work on a project together using twin turbines to create continual power. On the opening of the telephone exchange in Budapest, 1881, Tesla became the chief electrician to the company, and was later engineer for the country's first telephone system. He also developed a device that, according to some, was a telephone repeater or amplifier, but according to others could have been the first loudspeaker.

United States and France

In 1882 he moved to Paris, France, to work as an engineer for the Continental Edison Company, designing improvements to electric equipment brought overseas from Edison's ideas. In the same year, Tesla conceived the induction motor and began developing various devices that use rotating magnetic fields for which he received patents in 1888.