The song was inspired by Mitchell's room in the Chelsea neighborhood of New York City. The inspiration for the first verse comes partly from the distinct décor of her apartment. While in Philadelphia, Mitchell and friends had made a mobile from shards of colored glass they had found in the street and wire coat hangers, which filtered the light coming into her room through the window and created the "rainbow on the wall". During coffeehouse performances of this song in the late 1960s, Mitchell explained that the famous stained glass was rescued from the salvaged windows of a demolished home for unwed mothers.
The lyrics of this song demonstrate Mitchell's talent with imagery, and her strong use of visual inspiration which come from her background in visual art. "The sun poured in like butterscotch and stuck to all my senses." Mitchell, in regards to "Chelsea Morning", in 1996 stated, "It was a very young and lovely time ... before I had a record deal. I think it's a very sweet song, but I don't think of it as part of my best work. To me, most of those early songs seem like the work of an ingenue."
"Chelsea Morning" was actually written before the release of Mitchell's 1968 debut album: Song to a Seagull but Mitchell held off recording the song until preparing her second album Clouds, partly because "Chelsea Morning" had already been recorded by other artists, notably Judy Collins who'd recorded the song during the 1968 sessions for her album Who Knows Where the Time Goes. "Chelsea Morning" did not make the track listing for the last-named album but Collins' version was given a July 1969 single release which was supported mainly by easy listening radio: the track reached #25 on Billboard's Easy Listening chart with peripheral Billboard Hot 100 impact peaking there at #78. "Chelsea Morning" made a belated debut as a Judy Collins album track on the singer's 1971 album release Living. Collins made a new recording of "Chelsea Morning" for her 1999 retrospective double-album release Forever: an Anthology.
In 1970, two versions of "Chelsea Morning" were ranked as Easy Listening hits in Billboard: Green Lyte Sunday featuring Susan Darby - an outfit from Dayton OH - reached #29 Easy Listening with "Chelsea Morning" that August while in November 1970 Sérgio Mendes & Brasil '66 took their take on the song to #21 Easy Listening. Another notable version in 1970 is by Sylvia McNeill on RCA 1922 (UK 45rpm) produced by Jack Good.