Diana was the youngest daughter of Spencer, Viscount Althorp, later the 8th Earl Spencer, and his first wife, Frances, Viscountess Althorp (formerly the Honourable Frances Burke Roche, and later Frances Shand Kydd). She was born at Park House, Sandringham in Norfolk, England on 1 July 1961 at 6.45 in the evening. She was baptised at St. Mary Magdalene Church by the Rt. Rev. Percy Herbert (rector of the church and former Bishop of Norwich and Blackburn); her godparents included John Floyd (the chairman of Christie's). She was the third child to the couple, her four siblings being The Lady Sarah Spencer (born 1955), The Lady Jane Spencer (born 1957), The Honourable John Spencer (died 12 January 1960), and The Honourable Charles Spencer (born 1964). Following her parents' acrimonious divorce in 1969 (over Lady Althorp's affair with wallpaper heir Peter Shand Kydd), Diana's mother took her and her younger brother to live in an apartment in London's Knightsbridge, where Diana attended a local day school. That Christmas the Spencer children went to celebrate with their father and he subsequently refused to allow them to return to London with their mother. Lady Althorp sued for custody of her children, but Lady Althorp's mother's testimony against her daughter during the trial contributed to the court's decision to award custody of Diana and her brother to their father.
In 1976 Lord Spencer married Raine, Countess of Dartmouth, the only daughter of romantic novelist Barbara Cartland, after he was named as the "other party" in the Dartmouths' divorce. During this time Diana travelled up and down the country, living between her parents' homesówith her father at the Spencer seat in Northamptonshire, and with her mother, who had moved to the Island of Seil off the west coast of Scotland. Diana, like her siblings, did not get along with her stepmother.