James Gunn called the Holiday Special "one of my favorite stories ever," with a story "as crazy and fun as can be" that he had "bugged Kevin Feige endlessly about over the years." Gunn finished the script in April 2021, after initially writing the treatment "years ago." It took Gunn a few hours to write the script, and he noted featuring Kevin Bacon was a quick inclusion once he had figured out the story for the special.
This is set after Avenger Endgame and before Guardians of the Galaxy 3
For the flashback scenes they used old school rotoscoping animation in the style of the Ralph Bakshi films that James Gunn watched growing up and to give the 1970s and '80s nostalgic Christmas special feel. They filmed actors Luke Klein, Michael Rooker and Sean Gunn and then traced the footage frame by frame. Luke's features were altered to more closely resemble young Peter, Rooker's fin was added, and Sean was reduced in size to his younger self. The rotoscoping effects were done by Stoopid Buddy Studios.
The house used as Kevin Bacon's in the film actually belongs to music artist David Crowder. It was remodeled by his wife, Toni, who is an architect.