Reynold Alleyne Nicholson was born at Keighley, Yorkshire, on 19 August 1868, where his father, Henry Alleyne Nicholson (1844–99), was then practising as a surgeon. The Nicholsons were of eminent academic stock: in Reynold's youth, his father, whose research had been on palaeontology and zoology (PhD Göttingen 1866), became Regius Professor of Natural History at the Universities of St Andrews and Aberdeen. It is noteworthy that Henry Nicholson was the uncle of the celebrated English Impressionist composer John Ireland (1879–1962). Reynold's grandfather, John Nicholson of Penrith (1809–86), whom he knew as a boy, was a landowner, country gentleman and also an Orientalist (PhD Tübingen 1840), a Biblical scholar and a follower of the Swedish theologian and mystic Emanuel Swedenborg (1688–1772). John Nicholson had written an academic monograph titled An Account of the Establishment of the Fatemite Dynasty in Africa and had a collection of Arabic manuscripts. He and his father before him, the Rev. Mark Nicholson (1770–1838), Reynold's great-grandfather, had attended The Queen's College, Oxford. The Rev. Mark Nicholson had been President and Superior Master of the Theological College of the Church of the Province of the West Indies in Barbados, and he had married Lucy Reynold Elcock, daughter of Abel Alleyne (pronounced ‘Alleen’), facts which account for our subject's first and middle names and which correct the commonly assumed mispronunciation ‘Allayn’). Arberry reports that Reynold:

Nicholson was educated at the Collegiate School and Aberdeen University (1885–87) and went on to read Classics at Trinity College, Cambridge, in 1887. He won the Porson Prizes on two occasions for his Greek verse compositions, in 1888 and 1890. Having distinguished himself with a first in Part I of the Tripos, he seemed to lose heart and ‘dropped to a third’ in Part II. Arberry quotes a broadcast interview with Nicholson in which he said: ‘I had lost interest in my work, laboured under a sense of oppression and longed to be refreshed by contact with fresh ideas and experiences’.