Dandy was written by John Howard Palevich for his undergraduate thesis while attending MIT, drawing inspiration from Dungeons & Dragons, Defender, and arcade maze games.

[5] Electric Dreams Software published versions of Dandy for the ZX Spectrum, Commodore 64, and Amstrad CPC in 1986.

The second machine, a Hewlett-Packard Pascal Workstation in the HP 9000 family, was used as a file server, sending new maps to the Atari on demand.

The gameplay design of Thesis of Terror was heavily influenced by Dungeons & Dragons; Palevich had never played D&D, but he had read through the manuals and watched campaigns in the lounge of MIT's New House II dormitory.

[7] Thesis of Terror's gameplay was designed with help from MIT freshman Joel Gluck.

The new name, Dandy, is a play on the phonetic pronunciation of D and D, which at the time was a generic term for dungeon adventure role-playing games.

Palevich programmed the game on an Atari 800 with an AXLON RAMPOWER 128K memory expansion card and the SynAssembler from Synapse Software.

[9] Atari Program Exchange advertised Dandy as "the great new team game ... Bring up to three friends!

In the fall of 1985, Atari Games released Gauntlet, a project led by Ed Logg, with the same fundamental gameplay as Dandy.

[11] During a speech given at the 2012 Game Developers Conference, Ed Logg said that Dandy served as a direct inspiration for Gauntlet.

[5] In 1986, Electric Dreams Software, having failed to secure the Gauntlet license,[12] acquired the rights to produce the home computer ports of Dandy.

Their intent to release their game as Dauntless led to a dispute with U.S. Gold who were publishing the computer versions of Gauntlet at the same time.

[13] Electric Dreams published the game as Dandy for the ZX Spectrum, Commodore 64, and Amstrad CPC.