Tsakalotos was born in 1960 in Rotterdam, the Netherlands, to a father who hailed from Preveza, Epirus, Greece. His grandfather was the brother of General Thrasyvoulos Tsakalotos of Greek Civil War fame.
He studied economics at St Paul's School, London, and politics at the University of Oxford. He later completed a master's degree at The University of Sussex and a doctorate, in 1989, at the University of Oxford.
He was elected to the Hellenic Parliament, in 2015, under the banner of SYRIZA and was appointed Deputy Minister of Finance. On July 6, 2015, after the resignation of Yiannis Varoufakis, he was appointed Minister for Finance.
Tsakalotos is married to Scottish economist Heather Denise Gibson. They have three children.