Producer Paul Gurian' had bought the rights to Newton Thornburg's novel and asked screenwriter Jeffrey Alan Fiskin if he could adapt it into screenplay form. Gurian got the studio, EMI, interested in financially backing the film with Robert Mulligan to direct and Dustin Hoffman to play Alex Cutter. However, a scheduling conflict forced Hoffman to leave the project. This prompted Mulligan to leave as well. To make matters worse, EMI pulled their money once Mulligan and Hoffman left the project. Gurian then took the film to United Artists where the studio's vice president, David C. Field, became interested in backing it.
Producer Paul R. Gurian gave script-writer Jeffrey Alan Fiskin a list of directors, and asked him who he thought should direct the film. Ivan Passer's name was the only one the screenwriter didn't recognize. To investigate the director, Fiskin and a couple of United Artists executives screened Passer's 1965 Czech film Intimate Lighting (1965) [Intimate Lightning] and agreed that he was the man to direct the film. Interestingly enough, in 1971, Passer delivered the film Born to Win (1971) to United Artists.
The initial budget was supposed to be $3.3 million but then United Artists executive David C. Field found out that U.A. would only make the movie if the filmmakers were able to reduce the price tag to under three million dollars. Passer and company played along. Then, United Artists said that the film needed a big name star for it to succeed at the box office. The studio liked Jeff Bridges' work in the dailies for Michael Cimino's opus Heaven's Gate and said that they would only further support the film if the filmmakers got the actor to be in their movie.
According to Allmovie, "The film was fortunate to fall into the hands of United Artists Classics, a new division of the company crippled by the financial disaster of Heaven's Gate (1980). UA Classics adroitly marketed Cutter's Way, riding a wave of rave reviews and good word-of-mouth among more discriminating filmgoers to modest box-office success". Jeff Bridges starred in both movies.
When United Artists executives David C. Field and Claire Townsend, the film's biggest supporters, left for 20th Century Fox, the film became a victim of internal politics. United Artists senior domestic sales and marketing vice president Jerry Esbin saw the film and decided that it did not have any commercial possibilities. Passer did not see his film with a paying audience until the Houston Film Festival many weeks later, where the film won Best Picture, Best Director, Best Screenplay, and Best Actor (John Heard).
The film's growing amount of positive reviews prompted United Artists to give the film to their "art" division, United Artists Classics, where they changed the film's title from "Cutter and Bone" to "Cutter's Way" (thinking that the original title would be mistaken by audiences for a comedy about surgeons). It was given the prestigious closing feature slot at the Seattle Film Festival. With a new ad campaign in place, Cutter's Way re-opened in the summer of 1981 in Seattle, Los Angeles, Boston, and New York City. Word of mouth helped the film turn a profit.
Ivan Passer once said in an article entitled "Passer's Way", published in the July/August 1981 edition of "Film Comment" magazine, "You can assassinate movies as you can assassinate people. I think UA murdered the film. Or at least they tried to murder it".
Before the production started for this film, Ivan Passer and producer Paul Gurian went to Jeff Bridges's house to ask him if he agreed to play Bone's character. But after both entered into Bridge's property, the actor's dog, a big German shepherd, attacked Gurian and bit him at the jaw. Gurian nearly died. Jeff Bridges later confessed that, after this accident,,he had no choice to accept the role if he wanted to avoid to be sued for several millions dollars.
The film's original title, also the title of the movie's source novel, "Cutter and Bone", refers to the two names of the film's two lead characters, Alex Cutter (John Heard) and Richard Bone (Jeff Bridges).