It was previously unclear whether the cockatiel is a crested parakeet or small cockatoo; however, more recent molecular studies have assigned it to its own subfamily, Nymphicinae.

Originally described by Scottish writer and naturalist Robert Kerr in 1793 as Psittacus hollandicus, the cockatiel (or cockateel) was moved to its own genus, Nymphicus, by Wagler in 1832.

Its biological relationships were for a long time uncertain; it is now placed in a monotypic subfamily Nymphicinae, but was sometimes in the past classified among the Platycercinae, the broad-tailed parrots.

The unique, parakeet (meaning long-tailed parrot) morphological feature is a consequence of the decrease in size and accompanying change of ecological niche.

Sequence analysis of intron 7 of the nuclear β-fibrinogen gene, on the other hand, indicates that it may yet be distinct enough as to warrant recognition of the Nymphicinae rather than inclusion of the genus in the Calyptorhynchinae.

[13] The cockatiel is now biologically classified as a genuine member of Cacatuidae on account of sharing all of the cockatoo family's biological features, namely, the erectile crest, a gallbladder, powder down, suppressed cloudy-layer (which precludes the display of blue and green structural colours), and facial feathers covering the sides of the beak, all of which are rarely found outside the family Cacatuidae.

[14] Cockatiels are native to Australia, where they are found largely in arid or semi-arid country but always close to water.

They are absent from the most fertile southwest and southeast corners of the country, the deepest Western Australian deserts, and Cape York Peninsula.

The crest is dramatically vertical when the cockatiel is startled or excited, gently oblique in its neutral or relaxed state, and flattened close to the head when the animal is angry or defensive.

The crest is also held flat but protrudes outward in the back when the cockatiel is trying to appear alluring or flirtatious.

[16] In contrast to most cockatoos, the cockatiel has long tail feathers roughly making up half of its total length.

Most wild cockatiel chicks and juveniles look female, and are virtually indistinguishable from the time of hatching until their first moulting.

They display horizontal yellow stripes or bars on the ventral surface of their tail feathers, yellow spots on the ventral surface of the primary flight feathers of their wings, a grey coloured crest and face, and a dull orange patch on each of their cheeks.

Adult cockatiels with common coloring (grey body with yellow head) are sexually dimorphic, though to a lesser degree than many other avian species.

This is only evident after the first moulting, typically occurring about six to nine months after hatching: the male loses the white or yellow barring and spots on the underside of his tail feathers and wings.

The face and crest of the female will typically remain mostly grey with a yellowish tint, and a less vibrant orange cheek patch.

[23] Without being taught how to both male and female cockatiels repeat household sounds, including alarm clocks, phones, tunes or other birds from the outdoors.