Siegel was born in Brownsville, Brooklyn, to a poor Jewish family from Letychiv,^[2] Podolia Governorate of the Russian Empire (today's Ukraine). As a boy, Siegel joined a street gang on Lafayette Street on the Lower East Side and first committed mainly thefts, until, with another youth named Moe Sedway, he devised his own protection racket: pushcart merchants were forced to pay him a dollar or he would incinerate their merchandise on the spot.^[3]

During adolescence, Siegel befriended Meyer Lansky, who was forming a small crew whose criminal activities expanded to include gambling and car theft. Siegel reputedly also worked as the crew's hit man whom Lansky would sometimes hire out to other crime families.

In 1930, Lansky and Siegel built close ties to Charles "Lucky" Luciano and Frank Costello, both future bosses of the Genovese crime family. Siegel became a bootlegger and was also associated with Albert "Mad Hatter" Anastasia. Siegel was also heavily involved in bootlegging operations in New York, New Jersey and Philadelphia. During the so-called Castellammarese War in 1930-1931, they fought the gang of Sal Maranzano; Siegel reputedly had a hand in Maranzano's murder and later in the formation of Murder, Inc. In 1932, he was arrested for gambling and bootlegging but got away with only a fine. Lansky and Siegel assisted with Luciano's brief alliance with Dutch Schultz and killed rival loan sharks Louis "Pretty" Amberg and Joseph Amberg in 1935.