In 1979, Ross commissioned Chic founders Nile Rodgers and Bernard Edwards to create material for a new album after taking her daughters to see the band in concert.

In 2021, Nile Rodgers confirmed in a TikTok video that the song was inspired by seeing drag queens dressed as Diana Ross at a New York club, with Rodgers stating:[1] So the way that the song "I'm Coming Out" came to be was when we went to work for Diana Ross we wanted to write about things that were in her universe, so we went to her apartment and interviewed her for a couple of days.

If we wrote a song called "I'm Coming Out" for Diana Ross it would have the same power as James Brown's "Say It Loud – I'm Black and I'm Proud" and next day we met in the studio [...] and then from that we built the song.The lyrics hold an additional meaning for Ross, as she was leaving Motown Records and "coming out" from under Berry Gordy's thumb.

[2] According to the BBC4 documentary How to Make It in the Music Business, Ross loved the record until she put it in front of Frankie Crocker, who pointed out that "I'm coming out" is what homosexual people use to announce their homosexuality, that listeners would think Ross herself was announcing she was gay, and that it would ruin her career.

The phrase "coming out" to describe one's self-disclosure of sexual orientation or gender identity had been present in the LGBT subculture since the early 20th century.

The song is thus interpreted as a celebration of lesbian, gay, bisexual, or transgender identity and the encouragement of self-disclosure.

Monardo, a former first-call session player who had a string of hits in the late 1970s with disco versions of film music, also played trombone on the album and is featured in a solo towards the end of "I'm Coming Out": Nile recorded all the tracks and vocals and called me and my horn section for a 3-hour date.

We sounded great—Nile was pleased and as I was packing up, he asked me to stay and play a jazz trombone solo on one of the tracks.

A 2003 two-disc release of the album included the Rodgers/Edwards mix originally rejected by Ross, as a bonus track.

The video consists of Ross performing the song with studio musicians live in concert.