As a demo track, the song was simply called "1." He recorded the demo in Montreux, Switzerland. He would later comment that the production on the song undid the power of the lyric, saying he preferred the demo version. In 2004, Bowie's guitarist Gerry Leonard re-arranged the song into a stripped down vocals/acoustic arrangement, which Bowie felt was superior to the original version. The song was performed throughout the Reality Tour. Bowie's feelings on the new arrangement are voiced on Bowie's A Reality Tour DVD (which was also released an audio CD and digital download).
The song explored Bowie's "intense dislike" of organized religion. The lyrics reference problems caused by organized religion including the Israeli-Palestine conflict.
The original video included a shot at one point of Bowie with a nosebleed; this original version was only released on the 1987 video single "Day-In Day-Out." All subsequent releases of the video have the nosebleed scene edited out.
"Loving the Alien" inspired the title of Christopher Sandford's 1997 biography of Bowie.