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" predated the release of Mitchell's 1968 debut album, but she held off recording the song until her second album Clouds partly because it had already been recorded by other artists. The Collins version had been initially slated for Who Knows Where the Time Goes, but "Chelsea Morning" did not make the track listing for the album, instead given an April 1969 single release. 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 #4 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.
Neil Diamond recorded "Chelsea Morning" for his 1971 album release Stones. A Finnish rendering: "Kaupungin Aamu", was recorded by Anki for her 1972 album Ennen Aurinkoa while Kjell Hansson recorded the Swedish rendering "Skärgårdsmorgon" for his 1974 album Dig. Rebecca Luker recorded "Chelsea Morning" for her 2004 album Leaving Home. The Mitchell version of "Chelsea Morning" is included in the soundtrack of the 1985 feature film After Hours.
Bill and Hillary Clinton have stated that their daughter Chelsea is named for the song as performed by Judy Collins. Collins performed the song at President Clinton's 1993 Inaugural ball.