The "Alamo Bay" of the film's title is a fictitious locale and does not exist in real life though it is indicated which American state the setting resides which is Texas, USA.
The background to the real life events that inspired this picture were outlined by Vincent Canby in 'The New York Times' and published on 03 April 1985. Canby wrote: "After the collapse of the United States-backed Government in Saigon in 1975, more than half a million Vietnamese refugees made their way to this country [the USA], approximately 100,000 settling in Texas and many of these along the coast of the Gulf of Mexico. They fished and shrimped and, by being willing to work harder and put in longer hours than the white Texan - or ''Anglo'' - boatmen, they prospered. Because of the language barrier, the Vietnamese, most of them Roman Catholics, kept to themselves in their own makeshift communities. Initially times were good, but as prices for fish and shrimp fell, competition between the Vietnamese and the Anglos intensified until, in 1979, an undeclared war broke out. It was an ideal situation for the Ku Klux Klan. The next couple of years were marked by firebombings of Vietnamese boats and houses and the destruction of their fish-traps, with the Vietnamese retaliating in kind. There was no denying the urgency of the confrontations when, in 1980, a young Vietnamese shot and killed an Anglo fisherman named Billy Joe Aplin. To the economically beleaguered Anglos, of lot of whom had fought in Vietnam, the refugees were ''gooks'' and Communists who, according to the Anglo way of seeing things, had been saved by the United States Government - and by American blood - only to be able to take the food out of the mouths of good, solid, native-born patriots. To the Vietnamese, America had become a nightmare of violence and bigotry".
At the time the film was made, more than half a million refugees had relocated from Southeast Asia to the USA since America's involvement in Vietnam ended in April 1975. They migrated there in search of peace and opportunity, but very often, what they found was suspicion, resentment, and outright hostility. For them, the American Dream was elusive, its price high. The film's director Louis Malle said: "It is one of history's bitter ironies. These people were refugees because they fought next to the Americans, and fled from the Communist regime; but when they came to this country, they got into trouble with the same people they fought side by side with in Vietnam". For these new immigrants, one war was over, but another kind of war had just begun.
The picture was filmed entirely on location near Rockport, Texas. For nine weeks between March and May of 1984, the film crew shot in the towns and fishing villages where the actual real-life violence had erupted between the Texas fishermen and the Vietnamese refugees around four years earlier. Director Louis Malle said: "Many of the people we cast locally had actually been involved with the events we were treating in the script. lt became difficult sometimes to separate [the] reality from [the] fiction".