Latham was born in Sydney, New South Wales, and graduated from the University of Sydney with a degree in economics. He worked as a research assistant to the former Labor Prime Minister, Gough Whitlam. In 1987 he was elected to the city council of Liverpool, a south-western suburb of Sydney, and was Mayor 1991-94.
In January 1994 Latham was elected to the Australian House of Representatives for the Sydney seat of Werriwa, which had been Whitlam's seat 1952-78. He was elected to the Opposition front bench after Labor went into opposition at the 1996 elections, and became shadow Education Minister. After the 1998 elections he resigned from the front bench after a policy dispute with Opposition Leader Kim Beazley. The two have remained political enemies since.
On the backbench, Latham published Civilising Global Capital: New Thinking for Australian Labor (Allen and Unwin, 1998), in which he argued that Labor needed to abandon many of its traditional policies and embrace the aspirational values (home ownership, higher education) of the upwardly-mobile skilled working class and small business class. These views alienated him from many Labor traditionalists, but his aggressive Parliamentary style won him many admirers. He once referred to Prime Minister John Howard as an "arse-licker".
Latham summed up his approach to politics in a 2002 interview: "I'm a hater. Part of the tribalness of politics is to really dislike the other side with intensity. And the more I see of them the more I hate them. I hate their negativity. I hate their narrowness. I hate the way, for instance, John Howard tries to appeal to suburban values when I know that he hasn't got any real answers to the problems and challenges we face. I hate the phoniness of that."
After Labor's defeat in the 2001 elections, the new Opposition Leader, Simon Crean, brought Latham back to the front bench as Shadow Minister for Economic Ownership. Latham remained loyal to Crean during the leadership challenge from Beazley in June 2003, and in July Crean promoted him to Shadow Treasurer and Manager of Opposition Business in the House of Representatives. This made Latham the heir apparent to the Labor leadership should Crean have lost the election expected to be held in late 2004.
In November 2003, however, Crean experienced a second leadership crisis when senior Labor members told him that he had lost the support of the party and must resign. On 28 November Crean announced his resignation, endorsing Latham to succeed him. On 29 November Latham announced that he would contest the Labor leadership against former leader Kim Beazley.
On 2 December 2003, less than ten years after entering Parliament, Latham won the vote for the leadership by 47 votes to 45. At the age of 42, he became the youngest leader of the federal parliamentary Labor Party since its first leader Chris Watson, who became leader in 1901 aged 33.
On winning the leadership, Latham moved swiftly to heal the rifts in the Labor Party and to moderate his abrasive image. He appointed his predecessor, Simon Crean, shadow Treasurer (finance spokesperson), and retained a number of Beazley's supporters to senior positions. He gave a promise not to use the kind of "crude" language he had employed in the past. Latham and the party's foreign affairs spokesperson, Kevin Rudd, met the United States Ambasador, Tom Schieffer, to stress Labor's continuing support for the Australian-American alliance.