Producer Jon Peters drew the ire of Steven Seagal after the action star returned from a vacation in Indonesia and discovered that Peters had hired Gary Busey to play the villain - Busey famously played one of the villains in the first film, who was dispatched via explosion. Matters got worse when it was discovered that Busey had a "pay-or-play" deal which meant he got his fee if he was in the film or not. Ultimately, Busey was paid his $750,000 dollar salary - which allegedly came out of Seagal's pocket as a producer - but didn't work a day on the picture.
Original screenplay title, before being converted into a sequel to "Under Siege", was "In Dark Territory".
During this production Steven Seagal started wearing a girdle to contain his blubbery stomach. This was apparently a temporary fix, as he intended to lose the excess weight eventually. This has not occurred.
The scene of the destroyed industrial facility in China recycles unused footage from Auf brennendem Eis (1994) (another Steven Seagal movie). In On Deadly Ground, it's the burning Aegis Oil facility.
Filmmakers pioneered a new technique that enabled them to film all the interior train scenes (practically all the film) in the studio. Tennis balls glued on the studio walls were used as reference points to allow computers to insert footage of Colorado scenery, even when the camera moved around.