Matthew Olusegun Aremu Obasanjo was born at Ibogun-Olaogun, a village in south-western Nigeria about half-way between Lagos and Abeokuta. His passport later showed his date of birth as 5 March 1937, but there was no written record and the date was estimated from other family events. He was the first of his parents’ nine children and the only one to survive childhood except a younger sister. There are several interpretations of the baby's names, all suggesting his parents’ joy and hope. By one account, Olusegun meant ‘God conquers’, Aremu was a praise name with royal connotations, and Obasanjo – his father's first name – signified ‘the king rewards’. He abandoned Matthew at secondary school as an act of cultural nationalism.

Linguistic evidence suggests that ancestors of Obasanjo's Yoruba people had lived in this broad region of West Africa for several thousand years. By about A.D. 1000 they were forming kingdoms with capital towns. Obasanjo's ancestors came from one of the oldest, Owu, which was defeated and destroyed by its rivals during the 1820s in a war initiating an Age of Confusion that engulfed Yorubaland for the remainder of the nineteenth century. During the 1830s many Owu refugees settled at Abeokuta, a new town built by the similarly uprooted Egba branch of the Yoruba. Occupying a distinct southern quarter of the town, Owu people gained a reputation for industry, pride, truculence, and military valour.