Paper Moon is based on a book by Joe David Brown called Addie Pray. The film was originally slated for John Huston to direct, with Paul Newman and Newman's daughter, Nell Potts, in the lead roles, but the deal fell apart when Huston passed on the project due to prior commitments.

Paper Moon was Peter Bogdanovich's first film for the Directors Company, a production company formed by Bogdanovich, William Friedkin, and Francis Ford Coppola. At first, Bogdanovich had no real interest in filming what was then known as Addie Pray. He had been trying to get a Western made at Warner Brothers written by Larry McMurtry, a script that would eventually become Lonesome Dove. Bogdanovich was set on James Stewart, John Wayne, and Henry Fonda as the leads in his new Western. Unfortunately, Bogdanovich's dream project never reached fruition.

By Scott McGee