waterhouse was born in campbell town, tasmania, the second son of the wesleyan minister jabez bunting waterhouse. with his father's ministry taking the family around australia, his early education was varied. waterhouse started school in a small country town in south australia before attending st peter's college, adelaide in 1860. when the family moved to maitland, new south wales he attended dr frazer's grammar school for a short period before being enrolled as a boarding student at newington college in 1865. at newington he later became a pupil-teacher, before graduating ma from the university of sydney in 1876. in july 1880 when newington moved from silverwater to stanmore waterhouse was the one assistant master supporting president joseph horner fletcher and headmaster joseph coates.