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Derek was born the middle child of renowned Alpha Talia Hale and her unnamed husband on the outskirts of Beacon Hills, California in the mid-late 1980s. ("The Tell") As a member of a centuries-old and highly esteemed Werewolf bloodline, Derek was raised along with his sisters Laura and Cora and his uncle Peter to see lycanthropy as a gift.

However, when he first came into his powers in adolescence, he had great difficulty learning to control his transformations during full moons, even despite the fact that he was able to maintain control at any other time. Talia attempted to train Derek to stay in his human form by using a large bronze coin stamped with a Triskelion, which she claimed was a powerful talisman for control when used with the mantra, "Alpha, Beta, Omega." Unfortunately, since Derek knew there was nothing actually magical about it, it did little to help him, which led Peter to teach him to use anger, rage, and hatred as an anchor to his humanity, a method which ultimately worked, though it wasn't exactly the healthiest coping mechanism. ("Muted")

One night when Derek was a teenager, he was running away from Argent Hunters when he ran into a Beta who belonged to Ennis' original pack. Before they could fully identify each other, the Hunters caught up with them and shot the Beta through the neck with an arrow. Derek was too stunned to react and only avoided the same fate due to Peter's timely intervention at the last moment. The boys rushed over to a nearby root cellar to "hide and heal," as was the Werewolf protocol for when they were caught by Hunters and wanted to avoid drawing the danger to the rest of the pack. Unbeknownst to Derek, however, the root cellar was actually built around the roots of the Nemeton, a powerful tree used as a sacred meeting place for Druids.

A short time later, after Derek and Peter had returned home, Derek met a quiet, shy girl at school named Paige Krasikeva, who he immediately took a liking to after she proved immune to his put-on cocky, jock-like demeanor. They soon fell in love with each other and spent as much time as they could together, even if it meant that Derek was just watching her practice the cello in the music room. For unknown reasons, Peter remarked to Derek that their relationship would be doomed if she ever found out that he was a Werewolf, and claimed the only way that he could prevent that from happening would be if she was given the bite and turned into one of them. Peter thought they should take advantage of the fact that several Alphas were in town meeting with Talia, including Deucalion, Kali, and Ennis, since he knew that Talia wouldn't give Paige the bite without Paige's informed consent.

With this in mind, Peter later arranged for Ennis to bite Paige, as he had lost one of his Betas to the Argents already and believed that doing a favor for Derek would put him in Talia's good graces. However, after luring Paige to the high school, Derek was only able to listen to Paige's terrified screams for a few moments before he decided to intervene and stop Ennis from biting her. Unfortunately, Derek was only fifteen and a Beta at that time, so not only did he stand no chance against him, but he arrived too late to change anything—Paige had already been bitten and was fearfully crawling away. In a not-uncommon twist, Paige's body rejected the bite, and black blood began to pour from her nose and mouth, forcing Derek to bring her to the Nemeton's root cellar while he figured out what was going on.

Derek took as much of Paige's pain as he could, but when it became clear that she was dying, she admitted that she always knew Derek was different because of his Werewolf mannerisms, and added that she had also seen a lot of phenomena that couldn't be explained throughout her life in Beacon Hills. After she confessed her love for Derek, Paige then begged him to kill her to get it over with, and though Derek refused at first, he eventually agreed to end her suffering by using his Werewolf strength to snap her spine.

However, since he took the life of an innocent human (however consensual it may have been), Derek's previously-gold Werewolf eyes turned blue to indicate that Paige's death had darkened his soul. What Derek didn't realize was that he had killed Paige in the Nemeton's root cellar, spilling her blood onto the roots and inadvertently sacrificing a virgin to the tree. It was the power that Paige's life force gave the Nemeton that allowed Julia Baccari, later known as Jennifer Blake, to survive her wounds at Kali's hands until she was found by the police, an ironic turn of events since Derek would later engage in a romantic relationship with her. ("Visionary")

Derek continued to struggle with controlling his transformations on the full moon, though he refused to let it stop him from playing on the Beacon Hills High School basketball team. Shortly after Paige's death, Derek met Kate Argent, who, unbeknownst to him, was an Argent Werewolf Hunter who initiated a love affair with him in order to gain information that could be used to take out his family.

At some point near the end of 2004 and the beginning of 2005, while Derek and Laura were at school, Kate and her co-conspirators set fire to the Hale House while the majority of his family was trapped inside. ("Code Breaker") His mother Talia and between six and nine additional people died in the fire, and there were only two survivors: Peter, who had second and third-degree burns over the majority of his body that caused him to go into a coma for six years while he healed ("Magic Bullet"); and Cora, who, at just eleven years old, went on the run and fled Beacon Hills under the mistaken impression that none of her family had lived through the fire. ("Fireflies"), ("Unleashed")

Derek, too ashamed to tell his family that he accidentally made it easier for Kate to attack them by dating her, left Beacon Hills with Laura and moved to New York, where they lived together until 2011 when strange animal attacks drew them back to their hometown. Laura came to Beacon Hills first, after she was sent a photo of a dead deer in the preserve that had a spiral burned into its fur. After not hearing from Laura for a while, Derek travelled to his hometown to check on her, only to find that she had been killed by an then-unknown Werewolf and her body cut in half post-mortum by Argent Hunters.