In 1963, Danandjaja enrolled at the University of Indonesia (UI) to study anthropology. During his studies, he became an assistant to the eminent anthropologist Koentjaraningrat, who endorsed him for a scholarship to continue his studies in the United States. Danandjaja began graduate work at the University of California, Berkeley, in 1969 and studied under folklorist Alan Dundes, graduating with a Master of Arts degree in 1971. His thesis was later published as An Annotated Bibliography of Javanese Folklore. While in California, he also learned the Martha Graham style of modern dance. Upon returning to Indonesia, Danandjaja enrolled in a Ph.D. program under the supervision of Koentjaraningrat. His dissertation was an ethnography of farming communities in the Balinese village of Trunyan. In 1972, he introduced a new course on Indonesian folklore in the anthropology department at UI and established the field of Indonesian folkloristics. He completed his Ph.D. in 1977 and subsequently published two books on the topic.
