The song is the title track of his 1976 album Year of the Cat, and was recorded at Abbey Road Studios, London, in January 1976 by engineer Alan Parsons.

Co-written by Peter Wood, "Year of the Cat" is a narrative song written in the second person whose protagonist, a tourist, is visiting an exotic market when a mysterious silk-clad woman appears and takes him away for a gauzy romantic adventure.

Stewart was obsessed with Bob Dylan’s 'of' songs — 'Masters of War', 'Chimes of Freedom', and presumably in 1975, 'Simple Twist of Fate' — believing that the preposition made them sound 'portentous'.

When he watched Casablanca on television, an opening couplet came to him: “In a morning from a Bogart movie, in a country where they turn back time/ You go strolling through the crowd like Peter Lorre contemplating a crime…”[6] In the Vietnamese zodiac, the Cat is one of the twelve signs.

[7] The song began as "Foot of the Stage", a song written by Stewart in 1966 after seeing a performance by comedian Tony Hancock whose patter about "being a complete loser" who might as well "end it all right here" drew laughs from the audience: Stewart's intuitive response that Hancock was in genuine despair led to the writing of "Foot of the Stage".

He recalled that he was opening for Linda Ronstadt during a 1975 tour of the United States and receiving a decidedly mixed reaction from audiences when he noticed the pianist (presumably Wood) using a catchy chord progression during soundchecks.

Parsons had Phil Kenzie add the alto saxophone part of the song—and by doing so transformed the original folk concept into the jazz-influenced ballad that put Al Stewart onto the charts.

According to Stewart on an episode of In the Studio with Redbeard (which devoted an episode to the making of the Year of the Cat album), Phil Kenzie was watching a movie and didn't want to be bothered with going to do session work; but as a favour to Alan Parsons he went to Abbey Road, and the sax solos were recorded in one or two takes, after which Kenzie left the studio to go back home and watch the rest of his movie.

The experimental band Psapp recorded a version for the compilation Take It Easy: 15 Soft Rock Anthems in 2006, which contained cat sound effects.