Director Mario Caiano initially wanted to highlight the gory scenes with red color. The idea was dropped due to budget limitations.
Director Mario Caiano stated that Nightmare Castle was born out of his passion for actress Barbara Steele and the Gothic genre, a style which he began to love between 1943 and '44 when he first read Edgar Allan Poe's work. Caiano said that he was not influenced by director Mario Bava, and did not remember seeing his films at the time with the possible exception of Black Sunday (1960).
The initial script treatment for the film was titled Orgasmo and re-uses ideas from Edgar Allan Poe's "The Tell-Tale Heart".
Mario Caiano's father Carlo Caiano was the producer of the film and was given a low budget to work with. With his friend art director Bruno Cesari, Caiano shot at Villa Parisi in Frascati and at Incir-De-Paolis Studios in Rome over 18 days.
Nightmare Castle serves as the inspiration for The Misfits' song Hybrid Moments. During the Chicago reunion performance of the Misfits in April 2019, scenes from Nightmare Castle accompanied the performance of the song.