Gene Kelly and Olivia Newton-John's dance number was filmed after filming had finished. Gene Kelly choreographed it. His conditions included a closed stage with only himself, Newton-John, a cameraman, a choreographer he had befriended, and two others.
After Kira tells Sonny she is one of the Greek muses, she starts to say, "My real name is Terp", but Sonny shushes her, and she never reveals her real name. She is there to help him open a dance club, and she is obviously a dancer , so her name is most likely Terpsichore, after the Greek muse of dance.
According to the special features on a recently released DVD, the cartoon sequence was added because the filmmakers needed to include an extra song written for the movie. Having a cartoon made for the song was easier than trying to make it fit into the movie.
Since fantasy is Xanadu's main theme, certain mattes, including some time-lapsed cloud effects matted over one muse's departure along the highway, and another matted above Gene Kelly as he sits on a beach playing a clarinet, don't look 100% realistic. This was intentional, done with the hope that the sequences would look mythical and unreal, rather than phony.
The choreography in the Gene Kelly-choreographed "Whenever You're Away From Me" is nearly identical to the choreography in the song "For Me and My Gal" (the version that takes place in a coffee shop) in the 1942 film of the same name, which starred Gene Kelly and Judy Garland.
The Pan Pacific Auditorium, on Beverly Boulevard, in Hollywood, near CBS's Television City, was used for exterior shots of the Xanadu Club. It was built in 1935, and destroyed by a fire in 1989. A community center now sits on the site, featuring a single version of the Pan Pacific's 4 curved deco spires.
Because Xanadu is an earthbound fantasy, many of the elaborate matting effects had to be successfully worked into naturalistic settings and street scenes. For example, one muse exits as a live-action tapered streak from within the metal superstructure of a large building. Robert Greenwald said Xanadu's effects were much harder than his his most impressive effects in space.
The film was meant to launch Olivia Newton-John's career as a solo star. Due to its complete failure at the American box office, it became the one and only time she received top billing without a co-star in a theatrical release.
The soundtrack was an enormous success. The song "Magic" went to #1 on the U.S. pop singles chart. In the UK, the soundtrack album peaked at number two, and the single "Xanadu" was #1 for two weeks in July 1980.
This film, playing as a 99-cent double-feature with Can't Stop the Music (1980), inspired John Wilson to create the Golden Raspberry Awards (a.k.a. Razzies), honoring the worst achievements in film. Robert Greenwald later won the first Worst Director Razzie Award.
Olivia Newton-John met Matt Lattanzi, who had a minor role, during filming. Afterward, Lattanzi accompanied Newton-John to Australia on a promotional visit for Xanadu (1980), and met her parents. They married in 1984, had one child, Chloe Lattanzi, and divorced in 1995.
"Don't Walk Away", an animated sequence in the film, features scenes nearly identical to portions of Thumbelina (1994), namely a shot of a small girl walking behind a leaf. Both were directed by Don Bluth.
The original budget was $4 million, but costs rose to $13 million. Universal head Ned Tanen fired Joel Silver, who immediately went to work for his friend and mentor Lawrence Gordon, who was also a producer on the film, and put Joel Silver back on the project.
Originally after their sunset walk, Kira and Sonny went back to Xanadu on the eve of its opening, where she sang "Suspended in Time" to him. The scene then transitioned to Sonny's apartment, where the tune finished and Kira then revealed her true nature. This version of the song was shot and was featured in the "Making Xanadu" TV special.
According to the two-page booklet included with the DVD, the film was originally conceived as a low-budget roller-disco movie. The imminent release of Skatetown, U.S.A. (1979) and Roller Boogie (1979) prompted many changes, like blending 1940s and 1980s styles.
In May 1980, MCA held a 2 day promotional convention, which included screenings of a 20 minute production reel. This reel features radically different versions of songs, different visual/sound effects, alternate shots/takes/dialogue, deleted scenes and an extended version of the tap-dance sequence that leads into "Fool."
At the start of the movie, Sunny goes walking along the boardwalk looking for Kera. He stops to ask "Lou" if he has seen her. Lou replies no, and proceeds to show Sunny photos of his children. Lou was in real life the owner of Sound City Studios in L.A. He is featured heavily in the 2013 movie "Sound City".