She was the daughter of Maximilian II, Holy Roman Emperor by his wife Maria of Spain, daughter of Charles V, Holy Roman Emperor by his wife Isabella of Portugal.

Born in Wiener Neustadt, Margaret was the fifteenth child and fifth daughter of her parents' sixteen children, of whom eight survived infancy.

[citation needed] From early childhood, she was deeply influenced by her mother's strict Catholicism.

In 1582, Empress Maria returned to her homeland Spain permanently, taking her youngest surviving child Margaret with her, promised to marry Philip II of Spain, who had lost his fourth wife, her sister, Anna of Austria, in 1580.

[citation needed] Margaret refused marriage to Philip II and took the veil under the name of Sister Margaret of the Cross as a Poor Clare nun in the Monastery of Santa Clara de las Descalzas Reales in Madrid.