Originally, Elliott the dragon was not to be seen at all in the film and remain invisible throughout. However, members of the studio animation department gradually lobbied studio heads to increase the amount of visible screen time. At first it was decided he would be only seen at the end of the film, but ultimately the character's screen time was increased to 22 minutes.
Animation director Don Bluth was told by the producers to create 900 feet of animation on a $1.8 million budget. When the producers were impressed with the first few scenes he completed, they updated their demand to 1800 feet of animation but neither increased the budget nor the production schedule. Bluth delivered the completed animation on time but was reprimanded for going $75,000 over budget.
Disney considered Olivia Newton-John to play Nora, but she was not available. Helen Reddy took the role because it was the best script she had been offered after her role as a singing nun in Airport 1975 (1974) and because she felt it would be the most appropriate for her as-yet unborn grandchildren to watch.
Animators Don Bluth, Gary Goldman, and John Pomeroy regularly worked 100 hours per week during production. When they applied for overtime pay, their superiors suggested that they instead receive one hour off for each hour of overtime they worked. At the end of production, all three men were owed six continuous weeks of time off. They used this time off to work on their private project, Banjo the Woodpile Cat (1979).
Originally, Al Kasha and Joel Hirschhorn were only hired to write one song, "Candle on the Water." But the studio was so pleased with the song that they decided to make it as a musical and kept Kasha and Hirschhorn on to write the score.
This is Ken Anderson's final film for Disney. Having spent much of his early life in East Asia, he based Elliott on the Chinese dragon trope; the ancient Chinese consider dragons good while Western cultures consider them evil.
The film's musical score and songs are considered to be anachronistic and out of place for the time and setting of the film where shanties and other period music would have more authenticity. This is because both producers and song writers agreed that the modern pop vocal style of Helen Reddy would make the film far more appealing to a broad audience.
An early draft of the script had a character named Ferdinand, a showman who wanted to exploit Elliott and take him on tour. He even had a song called "The Greatest Star of All," which was cut when the character was dropped from the film.
The story was set in the fictitious eastern seacoast town of Passamaquoddy. The movie set, however, was constructed on the west coast. This explains why the sun appears to be setting in the east in the scene early in the movie in which Nora exits the lighthouse after putting Pete to bed.
The lighthouse for the film was built on Point Buchon Trail located south of Los Osos, California, substituting for Maine. It was equipped with such a large beacon that Disney had to get special permission from the Coast Guard to operate it, since doing so during filming would have confused passing ships. Pacific Gas and Electric opened the Point Buchon Trail and allows hikers access to where filming took place.
This was the very first film released on VHS by Disney's home media outlet, Walt Disney Home Video. They HAD done releases on the Discovision, but this was the first program they released on their own, on the VHS/Betamax magnetic tape formats plus Laserdisc format at some point, and has the smallest stock number of every home media release the company put out (Stock No. 10). The home video tapes for the first three-to-four years of the studio's home media division retained the "Neon Mickey" Walt Disney Home Entertainment logo from the Discovision releases, but that logo became Walt Disney Home Video and changed from Walt's signature to the corporate one around the 1984 management shift. It would be retired two years later.
Unlike most Disney films, the original soundtrack album was released by Capitol Records because Helen Reddy was signed to them at the time. She recorded a single version of "Candle on the Water" with a different arrangement that was released as a single, and both it and the film version of the song were on the album. The single did not make the pop charts but reached #27 on Billboard's Adult Contemporary chart. Walt Disney Records acquired the rights to re-issue it on CD in 2002, but only the film version of the song was kept, while the single version has appeared on CD on Helen Reddy compilation albums.
Don Hahn, who was assistant director to Don Bluth on this film, gained some experience working with a combination of live-action and animation before later going on to work on Who Framed Roger Rabbit (1988).
Don Chaffey offered and insisted to share Directing credits with animation director Don Bluth, but Disney wouldn't allow it since the majority of the film is live-action. One of the reasons for Bluth's departure from Disney films.
An earlier version of the song "Brazzle Dazzle Day" depicted Nora showing Pete how to clean the lamp in the lighthouse, but it was totally re-written except for the name of the song. The only part of the original song that survives in the film is Lampie's line "When your job becomes a frolic, you'll become a brassaholic."
One technique used in the movie involved compositing with a Sodium vapour process, whereby up to three scenes might be composited together - for example, a live foreground, a live background, and an animated middle ground containing Elliott.
Dawn Wells almost got the role of Nora. But dropped out of the movie at the last minute. If she had the role this would been her first movie outside of Gilligans Island movie, with Jim Backus who had an extended cameo as the mayor.