The reason for this film's shockingly high budget, despite being set in one location, was because the apartment complex and the pool were built for the film. Some of this film was shot in Levittown, Pennsylvania at a Jacobson logistics warehouse site (director M. Night Shyamalan had committed to using films sites in PA). The set, built on the warehouse site, includes the apartment complex and a half city block of row houses. Occasional footage was shot inside the overflow area of the warehouse. Most of the filming was completed after Jacobson work hours.
Director M. Night Shyamalan, delighted after he discovered the unknown Cindy Cheung, was shocked to hear that her agent demanded $1 million for her role in this film. Night was prepared to pay the SAG minimum, $65,000. They settled at $100,000.
Contrary to popular belief, the creatures in this film are not based on any mythological creatures, and were all invented by director M. Night Shyamalan. The only creature to be based off of an existing illustration is the Narf, which is inspired by water sprites, nymphs, and water-faeries.
According to the book "The Man Who Heard Voices," or "How M. Night Shyamalan Risked His Career on a Fairy Tale," one of the reasons why Shyamalan decided to part with Disney was because Disney's president of development, Nina Jacobson, took her son to a party instead of staying home to read the script for Lady in the Water (2006). Shyamalan had it personally couriered to her, and to add insult to injury, she did not like it anyway. Shyamalan went off in a huff, and the "creative differences" he purportedly had with Disney was that he simply felt there was nothing creative about Disney anymore. He took the script to Warner Bros. instead, but without the usual marketing campaign that Disney promoted his other films with, and Lady in the Water (2006) was a box-office flop.
Director M. Night Shyamalan was in talks with Philip Seymour Hoffman for an unspecified role in this film. Hoffman, despite the fact that he "loved the script and liked the role," had scheduling conflicts.
This movie was originally set up at Disney, but director M. Night Shyamalan departed from the studio over "creative differences," and brought it to Warner Bros. Disney had produced Shyamalan's previous four films, and the studio's subsidiary Miramax Films also produced Wide Awake (1998), which Shyamalan wrote and directed. This departure became the subject of the book "The Man Who Heard Voices: Or, How M. Night Shyamalan Risked His Career on a Fairy Tale."
The character of the film critic Harry Farber is named after the late critic, painter, and writer Manny Farber (who unfortunately passed away two years after this film's theatrical release), who was often described as "iconoclastic."