Director Richard Elfman and star Marie-Pascale Elfman, who were married at the time, financed the movie by buying, renovating and selling houses. They ran out of money and the movie was rescued by a benefactor.
According to director Richard Elfman, the film was originally intended to be shipped out to China, where each frame of the black and white print was to be individually colored by hand, but this plan was found to be inefficient. In 2008, the film was digitally colorized under Elfman's authorization.
The film originated largely as a showcase for the musical performances of the Elfmans' musical theater troupe, The Mystic Knights Of The Oingo Boingo (with Danny Elfman's Satan character from the film being one such holdover from these stage shows). In the documentary "A Look Into The Forbidden Zone," director Richard Elfman states that he started the film with no particular audience in mind, merely as an exercise in unrestrained creativity and "to capture on film what I was no longer doing on stage with the Mystic Knights."
In the film's commentary, Richard Elfman reveals that the dysfunctional Hercules family was said to be inspired by some "trailer park types" he had lived next door to in Venice: "the father would yell at the mother, the mother would yell at the son, the son would yell at the daughter, the daughter would kick the dog."
The pin-up girl painting that King Fausto (Herve Villechaize) works on was done by Los Angeles-area painter Robert Blue, which was stolen from the painter's studio not long after the film's completion. In real life however, Villechaize was himself a skilled painter.
The heavyset boy who appears twice (during the Kipper Kids' boxing musical number, and who Grampa Hercules steals the pie from), was someone that Richard Elfman had known from his neighborhood. He was so shy that during his intended musical performance, he froze up on camera. His mouth was superimposed with Matthew Bright's.
Several of the cast and crew members also make cameos in the classroom scenes, such as the the Kipper Kids (as the blond pigtailed girls in the nostril harnesses), Gisele Lindley (as the girl with the missing tooth), and Richard Elfman (as one of the dark-suited performers in front of the room).
Several family members and business associates of director Richard Elfman's appear in the film in various roles: his then-wife Marie-Pascale Elfman and brother Danny Elfman (both of whom performed with him in the Mystic Knights Of The Oingo Boingo theater troupe); his grandfather Herman Bernstein plays The Old Yiddish Man; and the brothers' father Milton Elfman, appearing both as a factory worker and a background singer. Hyman Diamond (who plays Grampa Hercules), was Richard Elfman's real estate broker, appearing under a pseudoynm after the original actor fell through. Two of Richard Elfman's tenants from one of his real estate properties agreed to make cameos, as girls going into the classroom. Actor/writer Matthew Bright (a childhood friend of Danny Elfman's), and actor Gene Cunningham (credited as Ugh-Fudge Bwana) were themselves members of the brothers' Mystic Knights Of The Oingo Boingo as well.
An instrumental version of the main title theme was used as the opening theme for the animated TV series Dilbert (1999). The credits of the TV series referred to the music by the title "The Dilbert Zone."