The first idea for the game was a port of A Link to the Past, but it eventually evolved into an original game.

There is unused text in the game's ROM that says "You've got a Shovel! Now you can feel the joy of digging!" Additionally there is unused chest data in one of the caves for a shovel suggesting that the shovel was originally meant to be obtained from a chest rather than being purchased.

In an Iwata Asks interview conducted to promote the release of The Legend of Zelda: Spirit Tracks, Takashi Tezuka revealed that the world of Link's Awakening was strongly inspired by the 1990 TV series Twin Peaks. According to Tezuka, he was fascinated by how the show was able to mine drama out of a small cast of "suspicious types" confined to a single town and sought to replicate that approach with Link's Awakening, stating that "while it would be small enough in scope to easily understand, it would have deep and distinctive characteristics."