Simon Pegg and Nick Frost made the film to demonstrate their love for Steven Spielberg's science fiction classics Rencontres du troisième type (1977) and E.T., l'extra-terrestre (1982). When Spielberg got wind of the project, he happily suggested that he make a cameo appearance of some sort, in this case a voice on a speakerphone.
Simon Pegg and Nick Frost came up with the concept for Paul while waiting out a rainstorm on the set of Shaun of the Dead (2004). They handed producer Nira Park a sketch drawing of Paul wearing an FBI t-shirt, flipping off the viewer, with a caption that read "In the U.S., everybody is an alien." The actual drawing can be seen during the closing credits.
While researching the film, Simon Pegg and Nick Frost drove an RV along the route Clive and Graeme take in the script. During the trip, they stopped at the Little A'le'inn, where they encountered a chatty waitress and some belligerent locals. The encounter inspired them to include it in the script.
During the sequence in the comic shop, an issue of "The Boys" (a genuine series) can be seen on one of the racks. One of this comic's main characters (Hughie Campbell) was intentionally drawn to look like Simon Pegg. Pegg wrote the introduction for the first collected edition of "The Boys" and would later appear in the TV adaptation of the graphic novels on Amazon Prime Video, which is produced by Seth Rogen.
In an interview, Simon Pegg and Nick Frost mentioned that making a big budget studio film (they cited Paul as being more expensive than Shaun of the Dead (2004) and Hot Fuzz (2007) put together), there was a need for compromise: not in a negative sense, but that the studio also had a say in the filmmaking process. For instance, they originally felt an older actor like Jack Nicholson or Rip Torn would be ideal for the voice of the title character, but when the studio suggested Seth Rogen, they liked the idea, due to Rogen's distinguishable voice.