Studying his Bachelor of Arts (BA) degree at the University of Queensland, Stephensen joined the Communist Party of Australia (CPA) in 1921.

Graduating, he joined the Fanfrolico Press alongside fellow author Jack Lindsay, releasing an assortment of their own writings as well as translated works.

During this time he cohabitated with former ballet dancer Winifred Sarah Venus (née Lockyer), whom he later married in 1947 following her first husband's death.

Founding the monthly publication The Publicist alongside businessman William Miles, he laid down the fundamental frameworks of the Australia First Movement, which the two established in October 1941.

[4] Stephensen's paternal grandparents were Danish immigrants who had arrived in Queensland in the 1870s, converting from Lutheranism to Anglicanism and anglicising their surname from the original "Steffensen".

[3] Stephensen's youngest brother, Cyril Edward (Ted), served with the RAAF during World War II and was shot down over France and killed in May 1944.

For a brief period he was taught by V. Gordon Childe, whose socialist and pacifist beliefs prompted community opposition and led to his early resignation.

[9] Towards the end of the year, Stephensen led a student boycott of the school's speech day, at which the annual prizes were to be handed out by the state treasurer Ted Theodore.

He boarded at St John's College, where he soon received the nickname "Inky" for his habit of singing the chorus from "Mademoiselle from Armentières".

[13] He also became involved with the Workers' Educational Association (WEA) and developed a friendship with Fred Paterson, who would later become the only Communist Party MP elected to an Australian parliament.

[14] In June 1919 Stephensen's first published article in the University Magazine called for the "fostering of a national literature" and greater study of Australian poets, themes he would return to later in his career.

He gained a second-class honours degree in Modern Greats at Queen's College, Oxford where he studied as a Rhodes Scholar and was a member of the university branch of the Communist Party with A. J. P. Taylor, Graham Greene and Tom Driberg.