The story is partially based on one of Don Bluth's real-life experiences whilst living on a farm. The family's cat, who lived in a woodpile nearby, disappeared only to return to the farm and stay there several weeks later.
During the filming stage, it was considered to become a feature-length film. It included a fleshed-out villain: a scarred, cigar-smoking cat named Rocko, who bears similarities to Warren T. Rat (from An American Tail (1986)) and Carface (from All Dogs Go to Heaven (1989)). A termite that saves Banjo from a group of young children in Salt Lake City later became Digit in An American Tail. The tone of the film was darker and more akin to All Dogs Go to Heaven, and the climactic battle between Crazy Legs and Rocko was inspired by Disney's The Jungle Book (1967), with Banjo assisting in killing Rocko. However, it was found that padding the film and adding darker elements did not strengthen the storyline, so the filmmakers kept the film as a short.
Don Bluth pitched this film during pre-production to then-studio head Ron Miller as a future property for Disney. Seeing no value in it, Miller turned it down.
The rain and snow effects seen in this movie are re-used live-action passes thrown away by the Disney studio in favor of cheaper and faster techniques.
This film was started as a side project while Don was still working at Disney. He invited several other young animators to his house on nights and weekends to discover secrets of animation that he felt had been lost at Disney. Eventually, he resigned from Disney along with 17 other animators to finish this film and begin The Secret of NIMH (1982). That bold walk-out caused a delay in the release of Disney's The Fox and the Hound (1981), that was in mid production at the time.