Nichols was born Michael Igor Peschkowsky in Berlin, Germany of a Russian father and German mother. His family immigrated to the United States when he was seven. Raised in New York City, Nichols attended the University of Chicago where, together with Elaine May and Paul Sills, he was one of the founding members of the comedy group The Compass, later renamed Second City. Nichols is a recipient of the 2003 Kennedy Center Honors and is Chairman of the Board of Friends In Deed, a non-profit organization founded to provide support to those affected by life-threatening illness.