Peter Caruana was born in Gibraltar in 1957, his family being of Maltese descent, having come to Gibraltar in the 19th century as naval tailors, and establishing a business still trading today. He was educated in Gibraltar and in the UK. He is married to the daughter of J.J Triay, a local barrister. In the 1960s, Triay was one of the palomos or 'doves', who aroused controversy by advocating an agreement with Spain, which has a territorial claim on Gibraltar.
While in opposition, Caruana advocated dialogue with Spain, and appeared more conciliatory than the then Chief Minister, Joe Bossano, who was widely regarded as more hardline. However, as Chief Minister he has ruled out any transfer of sovereignty to Spain.