Atherton was born in Failsworth, Lancashire, England. His family includes several lesser known sportspeople, such as his father Alan, a former Manchester United reserve goalkeeper in the 1960s.

As a youth, he captained the Manchester Grammar School cricket team, for whom he scored almost 3,500 runs and took 170 wickets. His performances led to selection for the England under-19 team, which he captained aged 16. He also represented Lancashire Schools from 1982 to 1986. In 1983 he won the Jack Hobbs Memorial Award as the Outstanding Schoolboy Cricketer at under-15 level. In a (non-first-class) match against the Marylebone Cricket Club in 1984 he took 6–27.

Entering Downing College, Cambridge, to read History, he was selected at 18 to play for Cambridge University Cricket Club and awarded a blue. A year later he made 73 on his county debut for Lancashire, scoring his maiden first-class hundred against Derbyshire a fortnight later. During this time he represented his university, the Combined Universities cricket team (which he captained to the quarter finals of the Benson & Hedges Cup in 1989) and his county. This early rise through the ranks, and extensive leadership experience earned him the nickname "FEC", which is thought to have stood for "future England captain". In his autobiography Opening Up, Atherton is candid about the fact that there are more colourful alternatives for "FEC"; the second word being "educated"; as suggested by his teammates at the time.

Atherton's heady rise continued when he made his debut for England in the fifth test against Australia at Trent Bridge, where he scored 0 and 47. Atherton's chance came when several England players had just announced their decision to go on a rebel tour to South Africa and so were banned from the Test tea