Rayudu was born on 23 September 1985 in Guntur. His father Sambasiva Rao worked at the archives department. Rayudu has said in an interview that his father was his inspiration to take up cricket and put him into a coaching camp when he was in third grade. Rayudu's father took him to the cricket academy of former Hyderabad cricketer Vijay Paul in 1992. Paul recalls, "Rayudu’s father used to ferry him around on his scooter to the cricket camps and various matches." According to Abdul Azeem, Rao "used to stand about 50 metres away and watch Rayudu practice day-in and day-out."

Rayudu completed his schooling from Bhavan's Sri Ramakrishna Vidyalaya, Sainikpuri.

Early promise

Rayudu began his career playing for Hyderabad youth teams in the late-1990s, playing at the Under-16 and Under-19 levels. He appeared for India Under-15s at the ACC Under-15 Trophy in 2000, finishing as the leading run-scorer of the tournament and winning man of the match in the final against Pakistan. Prolific run-scoring at age group levels saw him getting elevated to the senior team squad of Hyderabad. He made his first-class debut for Hyderabad in January 2002, at the age of 16, during the 2001–02 Ranji Trophy. Batting at 4, he scored 33 in that match, his only first-class appearance of the season. Later that year, he was made captain of India Under-17s and also made appearances for India Under-19s. On India Under-19 tour of England, his maiden Under-19 assignment, Rayudu batted as an opener and made a total of 291 runs from 3 innings and finished as the highest run-getter of the series which India swept 3–0. His best efforts of the series came in the third ODI in which he scored a 169-ball 177 to single-handedly take his team to the target of 304 from a precarious position of 137 for 6.