RE: is rails built on top of rack?

Where exactly would be the ‘low level’ code for rails? I want to trace the code, and I want to understand the how rails is setup.

Is it based on rack?

Where should I be looking in the source?

Rails actually consists of many many gems and components. What in particular you mean by "low level" depends entirely on what you are interested in.

http://edgeguides.rubyonrails.org/initialization.html