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With a script in place, the cast was assembled. In the spring of 1977, Peter Frampton, The Bee Gees, and George Martin met to begin work on the soundtrack.

The film began as a 1974 live Broadway show called Sgt. Pepper's Lonely Hearts Club Band on the Road, which was produced by The Robert Stigwood Organization. Stigwood had purchased the rights to use 29 Beatles songs for the play and was determined to do something with them, so he brought the songs to Henry Edwards to write a script. Edwards had never written a script for a film, but had impressed Stigwood with musical analysis he'd written for The New York Times. "I spread the songs out on my apartment floor and went to work," said Edwards. "Mr Stigwood wanted a concept. I told him I'd like to do a big MGM-like musical. We'd synthesize forms and end up with an MGM musical but with the music of today." Additionally, the movie becomes a time capsule of late 1970s pop culture with the last scene in which the cast is joined by "Our Guests at Heartland" to sing the reprise of the title track while standing in a formation imitating the classic Beatles' Sgt. Pepper album cover. The scene was filmed at MGM Studios on December 16, 1977; indeed, according to co-star Carel Struycken (Mustard's henchman, "Brute"), Sgt. Pepper was the last film to be made at MGM under that studio's then existing management.

The cast also featured British comedian Frankie Howerd as Mean Mr. Mustard (his only major U.S. film appearance; he later quipped about the film "It was like Saturday Night Fever, but without the fever"), Paul Nicholas as Dougie Shears, George Burns as Mr. Kite, Donald Pleasence as B.D., referred to in Burns' narrative voice-over as B.D. Hoffler, but officially known in the film's credits and publicity materials as B.D. Brockhurst (for unknown reasons), Sandy Farina as Strawberry Fields, Dianne Steinberg as Lucy, Aerosmith as Future Villain Band (FVB), Earth, Wind & Fire, who appear as themselves, Billy Preston as the magical Sgt. Pepper golden weather vane come to life, Alice Cooper as Father Sun, and Stargard as the Diamonds.

The production is somewhat adapted from Sgt. Pepper's Lonely Hearts Club Band on the Road, a 1974 off-Broadway production directed by Tom O'Horgan. It tells the loosely-constructed story of a band as they wrangle with the music industry and battle evil forces bent on stealing their instruments and corrupting their home town of Heartland. The film is presented in a form similar to that of a rock opera with the Beatles' songs providing "dialogue" to carry the story, with only George Burns having spoken lines that act to clarify the plot and provide further narration.

Sgt. Pepper's Lonely Hearts Club Band is a 1978 American musical film. Its soundtrack, Sgt. Pepper's Lonely Hearts Club Band, features new versions of songs originally written and performed by The Beatles. The film draws primarily from two of their albums, 1967's Sgt. Pepper's Lonely Hearts Club Band and 1969's Abbey Road.

Hopes for Sgt. Pepper's Lonely Hearts Club Band were high; its producers expected the film to be "This generation's Gone With the Wind". However, Janet Maslin of The New York Times wrote that the film's "musical numbers are strung together so mindlessly that the movie has the feel of an interminable variety show"; while it may have been "conceived in a spirit of merriment, ... watching it feels like playing shuffleboard at the absolute insistence of a bossy shipboard social director. When whimsy gets to be this overbearing, it simply isn't whimsy any more." She complimented Martin on his "completely unhinged rendition of "Maxwell's Silver Hammer," but pointed out that his scene is a "reminder that the film is otherwise humorless."