Director Max Barbakow and screenwriter Andy Siara conceived the film's concept while students at the American Film Institute, blending Jungian philosophical ideas with the practical need for a small-budget, easy-to-produce script.

The original idea was an absurdist mumblecore take on Leaving Las Vegas about a despondent man traveling to Palm Springs to kill himself, which was later reworked into a science fiction time-loop story after Siara went to write for the TV series Lodge 49.

Although Groundhog Day was a key inspiration for using a time loop in a romantic comedy, Barbakow and Siara deliberately distanced their script from it by starting the story with Nyles already stuck in the loop, making it feel like 'a sequel to a movie that doesn't exist.'

The project secured a California tax credit that required filming in the Los Angeles area rather than in the actual city of Palm Springs, despite the film's title and setting.

Principal photography began in April 2019 and lasted only 21 days.

The film features the Cabazon Dinosaurs, a well-known roadside attraction, in some of its shots.

Andy Samberg was announced first for the lead role, followed by Cristin Milioti and J. K. Simmons joining the cast in March 2019, with Camila Mendes added the following month.

Neon and Hulu acquired the film's distribution rights after its Sundance premiere for a reported $17,500,000.69, deliberately breaking the previous Sundance sale record by exactly $0.69; later reports put the total deal closer to $22 million once guarantees were included.

Hulu stated that Palm Springs set the platform's opening weekend viewing record, accumulating more hours watched in its first three days than any other film in Hulu's history.

In January 2021, Hulu released a commentary cut of the film featuring Samberg, Milioti, Barbakow, and Siara, which the streamer said was the first release of its kind by a streaming service.