[4] At the 24th Annual Grammy Awards, Gaucho won Best Engineered Recording – Non-Classical, and was nominated for Album of the Year and Best Pop Performance by a Duo or Group with Vocals.

The making of the album was plagued by a number of creative, personal, and professional problems,[5] and, once it was completed, there was a three-way legal battle between MCA, Warner Bros., and Steely Dan over the rights to release it.

By 1978, Walter Becker and Donald Fagen had established themselves as the only two permanent members of Steely Dan and were using a revolving cast of session musicians to record the songs they wrote together.

[5] During the course of the recording sessions for Gaucho, Becker was hit by a car late one Saturday night while walking home to his apartment on the Upper West Side.

As an example, it took Becker, Fagen, recording engineer Roger Nichols, and producer Gary Katz more than 55 attempts to complete a satisfactory mix of the 50-second fade out of "Babylon Sisters".

[19] An early version of "Third World Man", dating from the Aja sessions and with alternate lyrics, is included on The Lost Gaucho under the title "Were You Blind That Day".

[20] In late December 1979, after weeks of working on a particular version of the song, approximately three-quarters of the track was accidentally erased by an assistant engineer, who had been asked by Katz to ready it for listening.

[5][20] The band attempted to re-record the track, but eventually abandoned the song entirely,[20] focusing instead, according to Steely Dan biographer Brian Sweet, on "Third World Man".

[23] The possibility proved to be an actuality, and Roger Nichols' tape (and a second DAT version) were preserved in September 2021 and March 2023, and released in June 2023 in the Substack newsletter "Expanding Dan".

[24][25] According to Mike Powell of Stylus Magazine, Gaucho combines "bitter, poetic cynicism with freewheeling jazz-rock",[26] while Stephen Thomas Erlewine of AllMusic says it "essentially replicates the smooth jazz-pop of Aja, but with none of that record's dark, seductive romance or elegant aura".

[27] Similarly, rock historian Joe Stuessy suggested it was one in a series of Steely Dan albums that showed a progression of jazz influences in the band's sound, which was often described as "jazz-rock fusion".

[28] Music journalist and broadcaster Paul Sexton wrote that, while Aja had "announced [Steely Dan's] ever-greater exploration of jazz influences", Gaucho is "their yacht rock masterpiece".

[31] Patrick Hosken of MTV News said that, like Aja, Gaucho shows how "great yacht rock is also more musically ambitious than it might seem, tying blue-eyed soul and jazz to funk and R&B".

[34] The lyrics of "Hey Nineteen" are about an aging hipster attempting to pick up a girl who is so young that she does not recognize "'Retha Franklin" playing on the stereo,[35] and the song closes with the ambiguous line, "The Cuervo Gold, the fine Colombian, make tonight a wonderful thing", leaving it up to the listener whether the narrator is consuming tequila and drugs with the love interest, or if he is alone.

[55] Robert Christgau of The Village Voice remarked that "Even the song with Aretha in it lends credence to rumors that the LP was originally entitled Countdown to Lethargy",[44] referring to "Hey Nineteen" and its lyric about "'Retha Franklin".

"[57] In a retrospective review, Stephen Thomas Erlewine of AllMusic wrote that Gaucho, while sonically similar to Aja, features musical performances that have been overly rehearsed to the point of lacking emotional resonance, as well as inferior songwriting, except for the highlights "Babylon Sisters", "Time Out of Mind", and "Hey Nineteen", which "make the remainder of the album's glossy, meandering fusion worthwhile".

[59] At the 24th Annual Grammy Awards, Gaucho won Best Engineered Recording – Non-Classical, and was nominated for Album of the Year and Best Pop Performance by a Duo or Group with Vocals.