Born in Manhattan, Kansas, Peterson grew up in Randolph, until the town was flooded to create Tuttle Creek Reservoir. Her family then moved to Colorado Springs, Colorado. During her teens, Peterson worked as a go-go dancer in a local gay bar. She graduated from General William J. Palmer High School in 1969. Days after graduating, she drove to Las Vegas, Nevada, where she became a showgirl at The Dunes. The Guinness Book of World Records cited her as the youngest showgirl in Las Vegas history. She had a small role as a showgirl in the 1971 James Bond film Diamonds Are Forever, briefly dated Elvis Presley, played a topless dancer in Working Girls (1973), and posed for the cover of Tom Waits's 1976 album, Small Change.