In a September 29, 2023 interview with the game's director Kyle Rowley and principal narrative designer Molly Maloney published in MP1st, they were asked what took the sequel so long to make? Rowley stated that when the team completed Alan Wake, they really wanted to make a sequel, but because of various different reasons, nothing panned out. Every time they'd tried to make a new game, it started out as Alan Wake 2, so Quantum Break had foundations that came from some ideas they wanted to make for Alan Wake 2, Control got some ideas that the team originally were exploring to do a sequel for Alan Wake 2, and they just didn't necessarily fit the kind of game they wanted to make at the time, so they "just kind of drifted in or whatever". Some time during or after Control's development, they decided they really wanted to look for a way to make the Alan Wake sequel. According to them, the video game industry at the time was getting increasingly fixated on horror, not only the in the games, but also in pop culture. Rowley thought the success of Control allowed the team more freedom to somewhat explore those kinds of opportunities.

Maloney stated that she thought that idea also had a lot of them really excited. She commented that the game's creative director Sam Lake sometimes says "it's not the first version of Alan Wake 2, but it is the best version". She thought it was a combination of the right idea and Epic Games being a great partner to the developers, describing it like the planets aligned and the game finally got to be made when it needed to be made.

During the mission "Initiation 4" (also known as "We Sing"), Alan goes through a surreal set while his psyche Mr. Door and other characters sing "Herald of Darkness", a musical summarizing Alan's story up to that point. Notably, the music for this sequence was provided by Poets of the Fall as the fictional band "The Old Gods of Asgard". According to director Sam Lake, the idea was inspired by both the first Alan Wake's concert standoff and the Ashtray Maze level from Control, both of which were set to Poets of the Fall's music. Lake knew that both Michael Porretta and David Harewood (the actors behind Alan Wake and Mr. Door, respectively) could sing, and Poets of the Fall helped with the choreography.

During development, however, developers questioned the need of the musical sequence due to both the strangeness of the sequence in a horror game and the difficulties that came with pulling it off. Despite this, Lake insisted that the sequence be kept. The sequence proved to be highly popular, so much so that "Herald of Darkness" was performed live at The Game Awards 2023 by Poets of the Fall, with Ikka Villi, Matthew Porretta, David Harewood, and Sam Lake all reprising their roles from the game during the performance.

Reportedly, Alan Wake II's budget stands at €70 million: €50 million was spent on development, while the remaining €20 million was spent on marketing. This makes the game one of the most expensive cultural products in the history of Finland.

In October 2023, the narrative consulting firm Sweet Baby Inc. began receiving negative attention from websites like the forum Kiwi Farms for its mission statement and aggressive manner of "diversifying and enriching the video games industry", where one user described their work on Alan Wake II (AWII) as "possibly one of the biggest scandals in gaming history". This came to a head in January 2024, when a Steam Curator created a list of games they worked on, citing Sweet Baby's own resume on their website and in-game credits to qualify for the list. While the curator initially expressed that it was not intended to try and "kill" Sweet Baby "or even convince people to not buy any game that they've worked on", it gradually built up a conservative userbase encouraging players to avoid said games due to the studio promoting a "woke agenda".

This group received increased attention the next month after two Sweet Baby employees, Chris Kindred and Maya Felix Kramer, complained about the list on Twitter, with Kindred asking users to "report the fuck out of this group" for allegedly violating Steam's Online Conduct for discussion, while Kramer questioned why the list was up at all, claiming "any game at all" could be added. However, there was aforementioned criteria for a game to make the list, and Steam does not have rules restricting how users curate lists or write review blurbs. Since they are user-made and meant to inform and cater to specific topics/audiences, curators have no obligation to add games sent to them by developers, or to play/review games for them to be on a list. What then happened was an example of the Streisand effect, where users instead reported Kindred for violating Twitter's terms of service for encouraging targeted harassment, leading to their account being limited for one week, and the increased attention causing more users to follow the list. The attention was also exacerbated after it was noted that Kramer was previously associated with Zoë Quinn, a developer who was a prominent figure in the 2014 #Gamergate movement, where they were accused of performing a DDoS attack on the site of startup charity organizer The Fine Young Capitalists based on tweets they made allegedly claiming responsibility. The list gained over 210,000 followers in under a month, and a related Discord server gained almost 2,000 members. After multiple reports, Steam Support while in talks with the curator decided to keep the list up, but its forums were mostly purged and locked as of March 2024. The curator later decided to start a separate website to expand the list.

Mainstream gaming news outlets reported this controversy as "conservative conspiracy theories", with several noting that users blamed them for Suicide Squad: Kill the Justice League's (SS:KtJL) mixed reception rather than developer Rocksteady, and accused them of forcing Remedy Entertainment to change AWII/Quantum Break character Saga Anderson from white to black. These claims stem from Sweet Baby having a section in the credits of SS:KtJL featuring 13 credited writers implying a sizable influence over the story, and a November 2023 article by Game Developer revealing that Sweet Baby story and narrative consultant Kim Belair worked with Remedy on AWII to "refine the character voice and story arc" of Saga. Her actress Melanie Liburd also "offered suggestions and other insights". AWII creative director Sam Lake commented on Saga being Remedy's first black protagonist and having Nordic origins, saying that while "she isn't necessarily that connected with it, there are aspects for us developing this game from Finland that are kind of close to home [...] these different aspects coming together to form a very unique and fresh character in that sense" was a big part of her creation. Game director Kyle Rowley also commented:


Rowley denied that Sweet Baby was directly responsible for Saga's race-swap, calling it "absolutely not true."

Stacey Henley of TheGamer claimed in defense of Sweet Baby that "all these firms do is make suggestions" and that developers can reject suggestions they do not like, claiming that Sweet Baby was being used as a scapegoat to complain about diversity in video games and "When you resort so quickly to falsehoods, your anger is probably misplaced and unfounded."