Born in Glasgow, Scotland, Paterson spent three years as a quantity surveyor's apprentice,before attending the Royal Scottish Academy of Music and Drama.He made his professional acting debut in 1967, appearing alongside Leonard Rossiter in Bertolt Brecht's The Resistible Rise of Arturo Ui at the Glasgow Citizens Theatre. In 1970, Paterson joined the Citizen's Theatre for Youth. He remained there as an actor and assistant director until 1972, when he left to appear with Billy Connolly in The Great Northern Welly Boot Show at the Edinburgh Festival. Paterson would work with Connolly again, some years later, when he performed in Connolly's play An Me Wi' a Bad Leg Tae.