[1] Khatau was born into a poor Parsi family in 1857, and brought up in a house opposite the Dukkar Bazar (pig market)[2] in the Dhobi Talao area of Bombay (now Mumbai).
He started acting in 1875 and subsequently caught the attention of Jehangir Pestonjee Khambatta, who owned the Empress Victoria Theatrical Company.
[3][4] Khatau was rehearsing for his play Inder Sabha when Mary Fenton, a daughter of an Irish soldier in the British Indian Army, had come to book the hall for her magic lantern show.
[1][2][5][7] Fenton acted in Nanabhai Ranina's Nazan Shirin (1881), Bamanji Kabra's Bholi Gul (Innocent Flower, 1882, based on Ellen Wood's English novel East Lynne), Agha Hasan Amanat's Urdu opera Inder Sabha, Khambatta's Khudadad (The Gift of God, 1898, based on Shakespeare's Pericles, Prince of Tyre),[8] Gamde ni Gori (Village Nymph, 1890), Alauddin (1891), Tara Khurshid (1892), Kaliyug (1895)[5][7] and Kalidasa's Sanskrit play Shakuntala; many produced by his Alfred Company.
Syed Mehdi Hasan Ahsan's Khun-e-Nahaq (Unjustified Murder, 1898, based on Hamlet) brought Khatau recognition and he came to be known as "India's Irving" by viewers.