The series originated in 2003 when Mike Lazzo, then vice president of Adult Swim, asked for a project to be developed around the title 'Squidbilly's', inspired by a conversation about Hanna-Barbera's Squiddly Diddly character.

Over 35 scripts were written over the course of a year by writers including Matt Maiellaro, Pete Smith, Dave Willis, Jim Fortier, Matt Harrigan, and Mike Lazzo before the pilot was finalized, and the original pilot budget was only about $1,100.

The pilot episode was delayed multiple times, originally scheduled for December 2004 then November 7, 2004, but Adult Swim aired the first episode of Perfect Hair Forever instead that day because the Squidbillies episode wasn't finished; an unfinished version finally aired as an April Fool's joke on April 1, 2005 before the official premiere on October 16, 2005.

The protagonists Early and Rusty were originally going to be named Arvee and Donny, but the names were changed by writers Pete Smith and Jim Fortier to refresh the creators' original ideas.

Unknown Hinson, the original voice of Early Cuyler since 2005, was fired in August 2020 over controversial comments about Black Lives Matter and Dolly Parton, and was replaced by comedian Tracy Morgan for the show's 13th and final season.

The show's crude, sketchy animation style was a deliberate artistic choice rather than a budget limitation; according to co-creator Jim Fortier, a cleaner, sharper art style would have made the series less fun.

Backgrounds were created by artist Ben Prisk, who spent about a year and a half developing the folk-art-inspired style using acrylic paint, gouache, and spray paint before compositing them in Photoshop; each background took 12–15 hours to complete.

Unlike traditional animated series, Squidbillies used no storyboards, was never outsourced abroad for additional work, and was produced entirely in Atlanta with only five to seven animators, with each episode taking about 700 working hours.

An animated special called Anime Talk Show aired on November 4, 2004, featuring an early appearance of Early Cuyler alongside Meatwad from Aqua Teen Hunger Force and Sharko from Sealab 2021, and was later included as a bonus feature on the first Squidbillies DVD.