Rahder was born in Lubuk Begalung, the Dutch East Indies, now a subdistrict of Padang, where his father was governor of the west coast of Sumatra.
After working for several years on the Buddhist Dictionary Hôbôgirin (published by the Maison Franco-Japonaise in Tokyo), he was appointed Professor of Sanskrit, Avestan, Old Persian and principles of Indo-Germanic linguistics at the University of Utrecht (1930).
In 1933, during one of his many visits to the Far East, Rahder shared a trip on the Trans-Siberian Railway with poet Langston Hughes who characterized Rahder as "a famous authority on obscure Oriental languages," who, having lost his luggage, "had nothing with him but paper and pencils, not even a change of clothing for the trip across the Soviet Union."
("I Wonder as I Wander," Langston Hughes, Hill and Wang Publishers, pages 233-234, 1956 ) Barely a year later, he exchanged the chair for that in Japanese language and literature at Leiden University.
In 1946 he resigned from his post at Leiden, and joined the faculty at the University of Hawaiʻi at Mānoa, where he had been a visiting professor during 1937–1938.